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Safety First — An Expected Utility Principle

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  • Levy, Haim
  • Sarnat, Marshall

Abstract

The theory of choice under conditions of certainty has been extended by Von Neumann and Morgenstern [8], Friedman and Savage [5], Marschak [13], and others to conditions involving risk by assuming that individuals maximize their expected utility. The application of this theory to portfolio selection, to efficiency criteria, and to the explanation of the well-known phenomenon of diversification of assets has been carried further by Markowitz [11 and 12], Tobin [17], Samuelson [15], Sharpe [16], and Lintner [10], and more recently by Hadar and Russell [5] and Hanoch and Levy [8].

Suggested Citation

  • Levy, Haim & Sarnat, Marshall, 1972. "Safety First — An Expected Utility Principle," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(3), pages 1829-1834, June.
    • Handle: RePEc:cup:jfinqa:v:7:y:1972:i:03:p:1829-1834_01
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    Citations

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    Cited by:

    1. Izhar, Hylmun, 2012. "Measuring Operational Risk Exposures in Islamic Banking: A Proposed Measurement Approach," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 20, pages 45-86.
    2. Turan G. Bali & Stephen J. Brown & K. Ozgur Demirtas, 2013. "Do Hedge Funds Outperform Stocks and Bonds?," Management Science, INFORMS, vol. 59(8), pages 1887-1903, August.
    3. Gourieroux, C. & Laurent, J. P. & Scaillet, O., 2000. "Sensitivity analysis of Values at Risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 225-245, November.
    4. Celikyurt, U. & Ozekici, S., 2007. "Multiperiod portfolio optimization models in stochastic markets using the mean-variance approach," European Journal of Operational Research, Elsevier, vol. 179(1), pages 186-202, May.
    5. Jansen, Dennis W. & Koedijk, Kees G. & de Vries, Casper G., 2000. "Portfolio selection with limited downside risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 247-269, November.
    6. Bi, Jia & Zhu, Yifeng, 2020. "Value at risk, cross-sectional returns and the role of investor sentiment," Journal of Empirical Finance, Elsevier, vol. 56(C), pages 1-18.
    7. Chabi-Yo, Fousseni & Ruenzi, Stefan & Weigert, Florian, 2018. "Crash Sensitivity and the Cross Section of Expected Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(3), pages 1059-1100, June.
    8. Minghu Ha & Yang Yang & Chao Wang, 2017. "A portfolio optimization model for minimizing soft margin-based generalization bound," Journal of Intelligent Manufacturing, Springer, vol. 28(3), pages 759-766, March.
    9. Arthur Charpentier & Abder Oulidi, 2009. "Estimating allocations for Value-at-Risk portfolio optimization," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 69(3), pages 395-410, July.
    10. Yalcin Akcay & Atakan Yalcin, 2010. "Optimal Portfolio Selection With A Shortfall Probability Constraint: Evidence From Alternative Distribution Functions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(1), pages 77-102, March.
    11. Bai, Jennie & Bali, Turan G. & Wen, Quan, 2019. "Common risk factors in the cross-section of corporate bond returns," Journal of Financial Economics, Elsevier, vol. 131(3), pages 619-642.
    12. Levy, Haim & Levy, Moshe, 2009. "The safety first expected utility model: Experimental evidence and economic implications," Journal of Banking & Finance, Elsevier, vol. 33(8), pages 1494-1506, August.
    13. Haley, M. Ryan & McGee, M. Kevin, 2011. ""KLICing" there and back again: Portfolio selection using the empirical likelihood divergence and Hellinger distance," Journal of Empirical Finance, Elsevier, vol. 18(2), pages 341-352, March.
    14. Juliane Proelss & Denis Schweizer, 2014. "Polynomial goal programming and the implicit higher moment preferences of US institutional investors in hedge funds," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(1), pages 1-28, February.
    15. Haim Levy, 2010. "The CAPM is Alive and Well: A Review and Synthesis," European Financial Management, European Financial Management Association, vol. 16(1), pages 43-71, January.

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