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Expected Utility Approach to Financial Decision-Making

In: Financial Economics, Risk And Information An Introduction to Methods and Models

Author

Listed:
  • Marcelo Bianconi

    (Tufts University, USA)

Abstract

The following sections are included:IntroductionThe Von-Neumann-Morgenstern (VNM) Framework: Probability Distributions over OutcomesMeasurement of Risk AversionThe Von-Neumann-Morgenstern (VNM) Framework: State Dependent UtilityPortfolio Choice and Comparative Statics with VNM State Independent Expected UtilityThe Quadratic Utility FunctionDiversification, Risk Aversion and Non-Systematic RiskSummaryProblemsNotes on the LiteratureReferencesAppendix to Chapter 3Introduction to Mean-Variance Analysis with Expected Utility based on Normal Distribution of PayoffsThe PayoffsThe Specific Functional Form for the Utility FunctionThe Individual Budget ConstraintThe Equilibrium AllocationComparative StaticsClosed Form SolutionsSummary IIntroduction to Non-Additive ProbabilitiesThe Cost of Knightian Uncertainty with Uncertainty AversionRisk Averse Bayesian BehaviorSummary IINotes on the LiteratureReferences

Suggested Citation

  • Marcelo Bianconi, 2003. "Expected Utility Approach to Financial Decision-Making," World Scientific Book Chapters, in: Financial Economics, Risk And Information An Introduction to Methods and Models, chapter 3, pages 107-168, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789812775399_0003
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