Eliciting Beliefs from Optimal Portfolios
7 Pages Posted: 8 Mar 2016 Last revised: 27 Nov 2017
Date Written: November 25, 2017
Abstract
An investor has a strictly increasing Bernoulli utility function. He chooses an expected utility maximizing portfolio among a finite set of assets with random return profile. A compensation scheme assigns positive payments to the investor depending on his portfolio and the realized return profile. We show that for every utility function there exists a compensation scheme such that the optimal portfolio subject to the compensation scheme perfectly reveals the investor's probability distribution over the joint return profile. Moreover, the maximal payment under a belief revealing compensation scheme can be arbitrarily small.
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