A Mu-Sigma Risk Aversion Paradox and Wealth Dependent Utility.

We report a surprising property of mu-sigma-preferences: the assumption of nonincreasing relative risk aversion implies the optimal portfolio being riskless. We discuss a solution of that paradox using wealth dependent utility functions in detail. Using the revealed preference theory we show that (general, i.e. not necessary mu-sigma) wealth dependent utility functions can be characterized by Wald's axiom. Copyright 2001 by Kluwer Academic Publishers

MoreLess

Year of publication:	2001
Authors:	Loffler, Andreas
Published in:	Journal of Risk and Uncertainty. - Springer. - Vol. 23.2001, 1, p. 57-73
Publisher:	Springer

More details

Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005709702