Revisiting the Expected Utility Theory and the Consumption CAPM

The concept of utility is the core component of many foundational theories in social sciences. It has evolved from a philosophical belief that people seek happiness and satisfaction to a mathematically derived theory in economics and finance. Beginning with a brief review of the developments in the Expected Utility Theory (EUT) and its applicability in equity pricing, this paper includes a critical appraisal of relevant theoretical and empirical studies from the fields of financial economics and behavioural studies, with a particular focus on the the Consumption Capital Asset Pricing Model (CCAPM).