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Compatibility of Expected Utility and µ/s Approaches to Risk for a Class of Non Location-Scale Distributions

Author

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  • Gerry Boyle

    () (Economics Department, National University of Ireland, Maynooth)

  • Denis Conniffe

    () (Economics Department, National University of Ireland, Maynooth)

Abstract

Proofs of compatibility of the expected utility and µ/s approaches to incorporating uncertainty in decision making exist for at least some utility functions and location-scale distributions. But there are severe constraints and it is desirable to investigate compatibility more widely. We do so for the class of distributions that are transformable to location-scale form by concave transformation and where the utility functions remain concave under transformation. The class is important, containing distributions such as the lognormal and Pareto, usually considered more appropriate for modelling income or wealth than those in the location-scale family.

Suggested Citation

  • Gerry Boyle & Denis Conniffe, 2006. "Compatibility of Expected Utility and µ/s Approaches to Risk for a Class of Non Location-Scale Distributions," Economics, Finance and Accounting Department Working Paper Series n1670406, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n1670406
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    References listed on IDEAS

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    1. Bierwag, G O, 1974. "The Rationale of the Mean-Standard Deviation Analysis: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 431-433, June.
    2. Levy, Haim, 1974. "The Rationale of the Mean-Standard Deviation Analysis: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 434-441, June.
    3. Joram Mayshar, 1978. "A Note on Feldstein's Criticism of Mean-Variance Analysis," Review of Economic Studies, Oxford University Press, vol. 45(1), pages 197-199.
    4. Borch, Karl, 1974. "The Rationale of the Mean-Standard Deviation Analysis: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 428-430, June.
    5. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
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    Cited by:

    1. James Cox & Vjollca Sadiraj & Bodo Vogt & Utteeyo Dasgupta, 2013. "Is there a plausible theory for decision under risk? A dual calibration critique," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(2), pages 305-333, October.
    2. Conniffe, Denis, 2008. "Generalised Means of Simple Utility Functions with Risk Aversion," The Economic and Social Review, Economic and Social Studies, vol. 39(1), pages 1-12.

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