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Estimating Exponential Utility Functions

Author

Listed:
  • Buccola, Steven T.
  • French, Ben C.

Abstract

The exponential utility function for money has long attracted attention from theorists because it exhibits nonincreasing absolute risk aversion. Also, under certain conditions, it generates an expected utility function that is maximizable in a quadratic program. However, this functional form presents estimation problems. Logarithmic transformation of an exponential utility function does not conform to the Von Neumann-Morgenstern axioms. Hence, it cannot be used as a basis for best fit in statistical analysis. A criterion is described that can be used to select a best-fit exponential utility function, and its application in grower utility analysis is demonstrated.

Suggested Citation

  • Buccola, Steven T. & French, Ben C., 1978. "Estimating Exponential Utility Functions," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, vol. 30(1), pages 1-7, January.
    • Handle: RePEc:ags:uersja:148095
    DOI: 10.22004/ag.econ.148095
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    Cited by:

    1. Kögl, H., 1980. "Erklärung und Prognose einzelbetrieblicher Entwicklung mit Hilfe von Risikonutzenfunktionen," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 17.
    2. Chirag Shekhar & Mark Trede, 2017. "Portfolio Optimization Using Multivariate t-Copulas with Conditionally Skewed Margins," Review of Economics & Finance, Better Advances Press, Canada, vol. 9, pages 29-41, August.
    3. Duncan, Steven Scott, 1988. "The relevant forecast of variance of income for marketing decisions under uncertainty," ISU General Staff Papers 198801010800009839, Iowa State University, Department of Economics.

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