Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers


Ludwig, Alexander ; Zimper, Alexander


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URL: https://ub-madoc.bib.uni-mannheim.de/891
URN: urn:nbn:de:bsz:180-madoc-8917
Document Type: Working paper
Year of publication: 2004
Publication language: English
Institution: Außerfakultäre Einrichtungen > Mannheim Research Institute for the Economics of Aging (MEA) (- 6/2011) (Börsch-Supan) (Börsch-Supan)
MADOC publication series: Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject: 330 Economics
Classification: JEL: D81 G20 ,
Subject headings (SWD): Ambiguität , Pessimismus , Optimismus , Investor
Abstract: We define pessimistic, respectively optimistic, investors as CEU (Choquet expected utility) decision makers who update their pessimistic, respectively optimistic, beliefs according to a pessimistic (Dempster-Shafer), respectively optimistic, update rule. This paper then demonstrates that, in contrast to optimistic investors, pessimistic investors may strictly prefer investing in an illiquid asset to investing in a liquid asset. Key to our result is the dynamic inconsistency of CEU decision making, implying that a CEU decision maker ex ante prefers a different strategy with respect to prematurely liquidating an uncertain long-term investment project than after learning her liquidity needs. Investing in an illiquid asset then serves as a commitment device guaranteeing an ex ante favorable outcome.
Additional information:

Dieser Eintrag ist Teil der Universitätsbibliographie.

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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Ludwig, Alexander ; Zimper, Alexander (2004) Investment Behavior under Ambiguity: The Case of Pessimistic Decision Makers. Open Access [Working paper]
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