Aspirational Preferences and Their Representation by Risk Measures
Journal
Management Science
ISSN
0025-1909
ISSN-Digital
1526-5501
Type
journal article
Date Issued
2012-11
Author(s)
Abstract
We consider choice over a set of monetary acts and study a general class of preferences. These preferences favor diversification, except perhaps on a subset of sufficiently disliked acts, over which concentration is instead preferred. This structure encompasses a number of known models, such as expected utility theory, maxmin utility theory, and convex risk measures. We show that such preferences share a dual representation in terms of a family of measures of risk and a target function. Specifically, the choice function is equivalent to selection of a maximum index level such that the risk of beating the target function at that level is acceptable. This dual representation may help to uncover new models of choice. One that we explore in detail is the special case of a bounded target function. This case corresponds to a type of satisficing and has descriptive relevance. Moreover, the model results in optimization problems that may be efficiently solved in large-scale.
Language
English
Keywords
Representation of choice
risk measures
aspiration levels
decision theory paradoxes.
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Refereed
Yes
Publisher
INFORMS
Publisher place
Hanover, Md.
Volume
58
Number
11
Start page
2095
End page
2113
Pages
19
Subject(s)
Eprints ID
63185
File(s)![Thumbnail Image]()
open.access
Name
Brown_AspirationalPreferences.pdf
Size
858.61 KB
Format
Adobe PDF
Checksum (MD5)
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