COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1891 Keynesian Utilities: Bulls and Bears Anat Bracha and Donald J. Brown April 2013 We propose Keynesian utilities as a new class of non-expected utility
functions representing the preferences of investors for optimism, defined as the
composition of the investor's preferences for risk and her preferences for ambiguity. The
optimism or pessimism of Keynesian utilities is determined by empirical proxies for risk
and ambiguity. Bulls and bears are defined respectively as optimistic and pessimistic
investors. The resulting family of Afriat inequalities are necessary and sufficient for
rationalizing the asset demands of bulls and bears with Keynesian utilities. |
