Journal ArticleDOI
The Efficiency Analysis of Choices Involving Risk
Giora Hanoch,Haim Levy +1 more
TLDR
In this paper, an analysis of the first step of the decision-making process of an individual decision maker among alternative risky ventures is presented, in terms of a single dimension such as money, both for the utility functions and for the probability distributions.Abstract:
Publisher Summary The choice of an individual decision maker among alternative risky ventures may be regarded as a two-step procedure. The decision maker chooses an efficient set among all available portfolios, independently of his tastes or preferences. Then, the decision maker applies individual preferences to this set to choose the desired portfolio. The subject of this chapter is the analysis of the first step. It deals with optimal selection rules that minimize the efficient set by discarding any portfolio that is inefficient in the sense that it is inferior to a member of the efficient set, from point of view of each and every individual, when all individuals' utility functions are assumed to be of a given general class of admissible functions. The analysis presented in the chapter is carried out in terms of a single dimension such as money, both for the utility functions and for the probability distributions. However, the results may easily be extended, with minor changes in the theorems and the proofs, to the multivariate case. The chapter explains a necessary and sufficient condition for efficiency, when no further restrictions are imposed on the utility functions. It presents proofs of the optimal efficiency criterion in the presence of general risk aversion, that is, for concave utility functions.read more
Citations
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Journal ArticleDOI
Comparing Risks by Acceptance and Rejection
TL;DR: In this paper, the authors modify the stochastic dominance requirement by taking into account the status quo (given by the current wealth) and the possibility of rejecting gambles, and by comparing rejections that are substantive (i.e., uniform over wealth levels or over utilities).
Journal ArticleDOI
A Generalized Measure of Riskiness
TL;DR: The empirical results indicate that the generalized measure of riskiness is able to rank equity portfolios based on their expected returns per unit of risk and hence yields a more efficient strategy for maximizing expected return of the portfolio while minimizing its risk.
Journal ArticleDOI
Stochastic Dominance Tests for Decreasing Absolute Risk Aversion. I. Discrete Random Variables
TL;DR: In this article, a type of stochastic dominance, called DSD, which is denned by the utility functions having decreasing absolute risk-aversion is discussed, and sufficient conditions for DSD are presented for discrete random variables which, after the possible addition of points of zero probability, are concentrated on finitely many equally-spaced points.
Journal ArticleDOI
A bayesian model for portfolio selection and revision
TL;DR: A survey of the literature concerning portfolio models can be found in this paper, where Tobin et al. this paper presented a model for portfolio revision and portfolio selection with a series of interrelated decisions made over time.
Journal ArticleDOI
Mean-risk analysis of risk aversion and wealth effects on optimal portfolios with multiple investment opportunities
Masaaki Kijima,Masamitsu Ohnishi +1 more
TL;DR: It is shown that, in a portfolio selection problem with multiple risky investments, an investor who is more risk averse in the Arrow-Pratt sense prefers less risk, in the sense of this paper, with less mean return and an investors who displays increasing (decreasing) relative risk aversion becomes more conservative as the initial capital increases.
References
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Journal ArticleDOI
Capital asset prices: a theory of market equilibrium under conditions of risk*
TL;DR: In this paper, the authors present a body of positive microeconomic theory dealing with conditions of risk, which can be used to predict the behavior of capital marcets under certain conditions.
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The Utility Analysis of Choices Involving Risk
TL;DR: In this paper, the authors suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis, i.e., individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject.
Journal ArticleDOI
The Existence of Probability Measures with Given Marginals
TL;DR: In this article, the existence of probability distributions with given marginals is studied under typically weaker assumptions, than those which are required by the use of Theorem 1, and necessary and sufficient conditions for a sequence of probability measures to be the sequence of distributions of a martingale, an upper semi-martingale or of partial sums of independent random variables.