Eliciting Beliefs from Optimal Portfolios

7 Pages Posted: 8 Mar 2016 Last revised: 27 Nov 2017

See all articles by Itai Arieli

Itai Arieli

Hebrew University of Jerusalem - Center for the Study of Rationality

Manuel Mueller-Frank

University of Navarra, IESE Business School

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.

Suggested Citation

Arieli, Itai and Mueller-Frank, Manuel, Eliciting Beliefs from Optimal Portfolios (November 25, 2017). Available at SSRN: https://ssrn.com/abstract=2744658 or http://dx.doi.org/10.2139/ssrn.2744658

Itai Arieli

Hebrew University of Jerusalem - Center for the Study of Rationality ( email )

Feldman Building
Givat-Ram
Jerusalem, 91904
Israel

Manuel Mueller-Frank (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

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