Linear-Risk-Tolerant, Invariant Risk Preferences
AbstractQuiggin and Chambers have introduced the notion of invariant preferences, and shown that the only invariant expected-utility functionals are those associated with a quadratic utility function. This note identifies the class of preferences which simultaneously satisfy invariance, two-fund portfolio separation, and linear risk tolerance to determine if there exist meaningful classes of preferences, which inherit much of the quadratic family's theoretical and empirical tractability, but do not necessarily inherit its more unattractive properties when regarded as preferences over wealth.
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Bibliographic InfoPaper provided by Risk and Sustainable Management Group, University of Queensland in its series Risk & Uncertainty Working Papers with number WPR04_3.
Date of creation: Apr 2004
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Other versions of this item:
- Chambers, Robert G & Quiggin, John, 2004. "Linear-Risk-Tolerant, Invariant Risk Preferences," Risk and Sustainable Management Group Working Papers 151162, University of Queensland, School of Economics.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-05-14 (All new papers)
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