Questions tagged [expected-utility]

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On the uniqueness of utility functions for both risk and time

I have a question regarding the uniqueness of preference functionals under risky and dynamic settings. Two well known models to represent preferences for both settings are the Expected Utility Model ...
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Utility theory or decision theory based on partial semiorders?

Roubens, Vincke & Pirlot have summarized and extended representation theorems for partial semiorders in the 80s and 90s. See e.g. Roubens, M. & Vincke, P.: Preference Modelling. Springer, 1985....
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Certainty Equivalents and Risk Premiums in Expected Utility Theory for Asymmetric Distributions

I want to calculte risk-premiums in order to assess how much risk-averse customers would be willing to pay for an insurance against an uncertain loss modeled by a random variable $X$. How would a risk-...
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Is maximal utility conditional on information linear in convex combinations of priors?

This is related to a Mathematica question here - https://math.stackexchange.com/q/1952779/374929 Is a (maximal expected utility) function of the form $U(\mu, X) \equiv \int_\Theta \int_\mathcal{X} \...
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Need help with Wakker (2010) on arbitrage

In Prospect Theory (2010; Cambridge UP), Peter P. Wakker has an exercise assignment 3.3.6 without solution in the book and I'm really unsure about this one. The exercise states on pages 76-77: ...
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Calculating risk interest rate within a two period model

I am trying to calculate how to determine the interest rate ( = risk free rate + premium) within the following model where a consumer decides to invest in a safe asset or in a risky asset. The utility ...
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66 views

derive value function from utility function

We have the utility function. $$U_{t} = \ln{c_{t}} + E_{t}\sum_{s=1}^{\infty}(\beta^{s}\ln{c_{t+s}})$$ And I am trying to find the value function. $U$ is utility function. $c_t$ is consumption at ...
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Does Pascal's Wager fail archimedean property?

I assume most people have heard of Pascal's Wager, in case you have not: https://en.wikipedia.org/wiki/Pascal%27s_Wager By the Stanford encyclopedia of philosphy: "We have a decision under risk,...
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1answer
73 views

Anscombe and Auman Expected Utility

I would like to hopefully get some insights on the Anscombe and Aumann Expected utility. I've read some proofs and understood the Expected Utility Theorem (VNM) which allows us to approach consumers ...
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47 views

Literature on Recursive Preferences and Time-Additive Expected Utility

In Chapter 20 of the book Economic Dynamics in Discrete Time, named "Recursive Utility", the author asserts that the Time-Additive Expected Utility Model (TAEU) has some shortcomings when applied to ...
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310 views

How a utility function which is both DARA and CRRA can be explained?

I'm studying risk aversion and I cannot make a intuitive explain about the utility function which is DARA and CRRA. for instance, let's say, $\ln W$, where $W$ stands for one's wealth. by the ...
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Numerical Backward Induction Optimal portfolio choice

I am currently considering a simple life-cycle problem. We consider a market with equity risk only, which follows a geometric Brownian motion. We seek to maximize the terminal wealth of a CRRA utility ...
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55 views

How is the defintion of the mean preserving spread (MPS) not too general?

The mean preserving spread is defined as follows: Consider two lotteries g and h. Let $x_g$ und $x_h$ denote the corresponding random variables. Then h is a mean preserving spread (MPS) of g, if: $...
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Savage's subjective probabilities applied to Allais paradox

I've been reading up on the von-Neumann and Savage proofs for the existence of an expected utility representation. I've also been reading critiques of the expected utility hypothesis, especially the ...
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How does supply and demand determine price for the following scenario?

Two individuals are stranded on an island. Bob and Jill. By themselves they can produce: Bob: 5 fish & 5 coconuts Jill: 5 fish & 5 coconuts If they specialize and trade, they can produce: ...