Life-Cycle Portfolio Allocation for Disappointment Averse Agents

@inproceedings{Khanapure2010LifeCyclePA,
  title={Life-Cycle Portfolio Allocation for Disappointment Averse Agents},
  author={R. Khanapure},
  year={2010}
}
I solve the life-cycle portfolio allocation problem of a disappointment averse (DA) agent with labor income risk. DA preferences overweight disappointing outcomes and are consistent with behavior highlighted by the Allais paradox. I show that unlike constant relative risk aversion (CRRA) investors, DA investors drastically cut their allocation to stocks when they retire. This result is consistent with empirical evidence on portfolio shares and with the allocation rules of target-date retirement… Expand
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