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Representing Risk Preferences in Expected Utility Based Decision Models

  • Meyer, Jack

The application and estimation of expected utility based decision models would benefit from having additional simple and flexible functional forms to represent risk preferences. The literature so far has provided these functional forms for the utility function itself. This work shows that functional forms for the marginal utility function are as useful, are easier to provide, and can represent a larger set of risk preferences. Several functional forms for marginal utility are suggested, and how they can be used is discussed. These marginal utility functions represent risk preferences that cannot be represented by any functional form for the utility function.

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File URL: http://purl.umn.edu/9380
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Paper provided by SCC-76: Economics and Management of Risk in Agriculture and Natural Resources in its series SCC-76 Meeting, March 15-17, 2007, Gulf Shores, Alabama with number 9380.

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Date of creation: 2007
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Handle: RePEc:ags:sccsgs:9380
Contact details of provider: Web page: http://www.auburn.edu/academic/agriculture/agrisk

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  1. Kocherlakota, N., 1995. "The Equity Premium: It's Still a Puzzle," Working Papers 95-05, University of Iowa, Department of Economics.
  2. Denis Conniffe, 2007. "The Generalised Extreme Value Distribution as Utility Function," Economics, Finance and Accounting Department Working Paper Series n1780907, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  3. Marco LiCalzi & Annamaria Sorato, 2003. "The Pearson system of utility functions," Game Theory and Information 0311002, EconWPA.
  4. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  5. Meyer, Donald J. & Meyer, Jack, 2005. "Risk preferences in multi-period consumption models, the equity premium puzzle, and habit formation utility," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1497-1515, November.
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