Disappointment Aversion and Expectiles

TL;DR

This paper reformulates disappointment aversion within a Savage framework, introducing new axioms and representations that enhance its theoretical foundation and link it to asymmetric least squares estimation.

Contribution

It provides a novel axiomatic and representational reformulation of disappointment aversion, broadening its applicability and connecting it to econometric estimation methods.

Findings

New explicit axioms of disappointment aversion

Broader applications enabled by the reformulation

Connection to asymmetric least squares estimation

Abstract

This paper recasts Gul (1991)'s theory of disappointment aversion in a Savage framework, with general outcomes, new explicit axioms of disappointment aversion, and novel explicit representations. These permit broader applications of the theory and better understanding of its decision-theoretic foundations. Our results exploit an unexpected connection of Gul's theory and the econometric framework of Newey and Powell (1987) of asymmetric least square estimation.