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Compatibility of Expected Utility and µ/s Approaches to Risk for a Class of Non Location-Scale Distributions

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Author Info
Gerry Boyle () (Economics, Finance and Accounting Department, National University of Ireland, Maynooth)
Denis Conniffe () (Economics, Finance and Accounting Department, National University of Ireland, Maynooth)
Abstract

Proofs of compatibility of the expected utility and µ/s approaches to incorporating uncertainty in decision making exist for at least some utility functions and location-scale distributions. But there are severe constraints and it is desirable to investigate compatibility more widely. We do so for the class of distributions that are transformable to location-scale form by concave transformation and where the utility functions remain concave under transformation. The class is important, containing distributions such as the lognormal and Pareto, usually considered more appropriate for modelling income or wealth than those in the location-scale family.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1670406.

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Length: 23 pages
Date of creation: 2006
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Handle: RePEc:may:mayecw:n1670406

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Mayshar, Joram, 1978. "A Note on Feldstein's Criticism of Mean-Variance Analysis," Review of Economic Studies, Blackwell Publishing, vol. 45(1), pages 197-99, February. [Downloadable!] (restricted)
  2. Borch, Karl, 1974. "The Rationale of the Mean-Standard Deviation Analysis: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 428-30, June. [Downloadable!] (restricted)
  3. Levy, Haim, 1974. "The Rationale of the Mean-Standard Deviation Analysis: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 434-41, June. [Downloadable!] (restricted)
  4. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June. [Downloadable!] (restricted)
  5. Bierwag, G O, 1974. "The Rationale of the Mean-Standard Deviation Analysis: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 431-33, June. [Downloadable!] (restricted)
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  1. Denis Conniffe, 2007. "Generalised Means of Simple Utility Functions with Risk Aversion," Economics, Finance and Accounting Department Working Paper Series n1790907.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
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