CFDP Revision Date
October 1, 2019
Journal of Economic Literature (JEL) Code(s)
D91, G41, I31
This working paper extends the methodology of non-smooth aﬀective portfolio theory (APT) for eliciting (IR)rational preferences of investors endowed with continuous quasilinear utility functions, where assets are portfolios of risky and ambiguous state-contingent claims. The elicitation is a solution of the aﬀective Afriat inequalities;see technical appendix 1. Solving the smooth aﬀective Afriat inequalities is Np-hard; see technical appendices 2, 3, and 4. The proposed extension is a methodology for the elicitation of (IR)rational preferences of individuals endowed with random continuous quasilinear utility functions deﬁned over ﬁnite subsets of discrete social goods as a refutable model of social exclusion in the incomplete markets for social goods; see technical appendices 5 and 6. The methods of elicitation are generalized estimating equations (GEE) and alternating logistic regression (ALR); see technical appendices; 7 and 8.
Krauss, Annette and Brown, Donald J., "Social Exclusion, Ambiguity and (IR)rationality" (2019). Cowles Foundation Discussion Papers. 48.