On Abel’s concept of doubt and pessimism

In this paper, we characterize subjective probability beliefs leading to a higher equilibrium market price of risk. We establish that Abels result on the impact of doubt on the risk premium is not correct (see Abel, A., 2002. An exploration of the e¤ects of pessimism and doubt on asset returns. Journal of Economic Dynamics and Control, 26, 1075-1092). We introduce, on the set of subjective probability beliefs, market-price-of-risk dominance concepts and we relate them to well known dominance concepts used for comparative statics in portfolio choice analysis. In particular, the necessary \u85rst order conditions on subjective probability beliefs in order to increase the market price of risk for all nondecreasing utility functions appear as equivalent to the monotone likelihood ratio property