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The informational content of the shape of utility functions: financial strategic behavior

  • Joost M.E. Pennings
  • Philip Garcia

    (Office for Futures and Options Research, University of Illinois at Urbana-Champaign, Urbana, IL, USA)

Recently, Pennings and Smidts (2003) showed a relationship between organizational behavior and the global shape of the utility function. Their results suggest that the shape of the utility function may be related to 'higher-order' decisions. This research examines the relationship between financial strategic decisions and the global shape of the utility function of real decision makers. We assess the shape of utility functions of portfolio managers and show that the global shape is related to their strategic asset allocation. The findings demonstrate the informational content of the shape of utility functions in the context of financial strategic behavior. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1439
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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 30 (2009)
Issue (Month): 2 ()
Pages: 83-90

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Handle: RePEc:wly:mgtdec:v:30:y:2009:i:2:p:83-90
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers E00-279, University of California at Berkeley.
  2. Gregory W. Fischer & Ziv Carmon & Dan Ariely & Gal Zauberman, 1999. "Goal-Based Construction of Preferences: Task Goals and the Prominence Effect," Management Science, INFORMS, vol. 45(8), pages 1057-1075, August.
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  9. Pennings, J.M.E. & Smidts, A., 2002. "The Shape of Utility Functions and Organizational Behavior," ERIM Report Series Research in Management ERS-2002-18-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  10. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
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