2024/10/23 by Yushi Hamaguchi, Hamaguchi, Yushi, Alex S. L. Tse +1
Decision Sciences · #49L99 #49N90 #91A10 #91E99 #91G10 #93E20 #Advanced Bandit Algorithms Research #Decision-Making and Behavioral Economics #FOS: Economics and business #General Economics (econ.GN) #General Finance (q-fin.GN) #Mathematical Finance (q-fin.MF) #Portfolio Management (q-fin.PM) #Risk and Portfolio Optimization
paper · pdf · doi:10.48550/arxiv.2410.18240
openalex publication_date 2024/10/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We introduce an infinite-horizon, continuous-time portfolio selection problem faced by an agent with periodic S-shaped preference and present bias. The inclusion of a quasi-hyperbolic discount function leads to time-inconsistency and we characterize the optimal portfolio for a pre-committing, naive and sophisticated agent respectively. In the more theoretically challenging problem with a sophisticated agent, the time-consistent planning strategy can be formulated as an equilibrium to a static mean field game. Interestingly, present bias and naivety do not necessarily result in less desirable risk taking behaviors, while agent's sophistication may lead to excessive leverage (underinvestement) in the bad (good) states of the world.