Arbeitspapier
Fundamental uncertainty, portfolio choice, and liquidity preference theory
One of Keynes' core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more boundedly rational approach to portfolio choice between liquidity and risky assets. The choice is made on the basis of individual beliefs which are subject to mental representations of the underlying economic structure. Self-consciousness arises when the agent is aware of the fact that beliefs are dispersed among agents due to the absence of a true model. Responding to this fact by increasing liquidity preference is rationalized by the higher ex post performance of choice. Moreover, we analyze the case that the portfolio is partially financed by debt. It is explored how fundamental uncertainty affects the volume of the portfolio and hence money and credit demand as well as the probability of debt failures.
- Language
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Englisch
- Bibliographic citation
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Series: Jena Economic Research Papers ; No. 2009,085
- Classification
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Wirtschaft
Portfolio Choice; Investment Decisions
Criteria for Decision-Making under Risk and Uncertainty
Demand for Money
History of Economic Thought: Individuals
- Subject
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liquidity preference
portfolio choice
self-confidence
self-consciousness
fundamental uncertainty
bounded rationality
Keynes
Knight
Liquiditätspräferenz
Entscheidung bei Unsicherheit
Beschränkte Rationalität
Portfolio-Management
Anlageverhalten
Theorie
- Event
-
Geistige Schöpfung
- (who)
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Pasche, Markus
- Event
-
Veröffentlichung
- (who)
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Friedrich Schiller University Jena and Max Planck Institute of Economics
- (where)
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Jena
- (when)
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2009
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Pasche, Markus
- Friedrich Schiller University Jena and Max Planck Institute of Economics
Time of origin
- 2009
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