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Portfolio Choice and Risk

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  • Jose Encarnacion, Jr.

    (School of Economics, University of the Philippines Diliman)

Abstract

Risk aversion and the riskiness of assets are interpreted in terms of a model of portfolio choice where the maximand is conditional on the probability of satisfying a minimum constraint on the future value of the portfolio. It is a consequence that the riskiness of the average asset in the portfolio increases with wealth, and when expected value is the maximand, low-risk low-return assets are inferior goods. The model also gives straightforward explanations of the Allais paradox and other puzzling patterns of choice under risk.

Suggested Citation

  • Jose Encarnacion, Jr., 1983. "Portfolio Choice and Risk," UP School of Economics Discussion Papers 198307, University of the Philippines School of Economics.
  • Handle: RePEc:phs:dpaper:198307
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