Social Exclusion, Ambiguity and (IR)rationality
53 Pages Posted: 2 Oct 2019
Date Written: October 1, 2019
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. Solving the smooth aﬀective Afriat inequalities is Np-hard. 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. The methods of elicitation are generalized estimating equations (GEE) and alternating logistic regression (ALR).
Keywords: Rationality, Behavioral Finance, Well Being
JEL Classification: D91, G41, I31
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