Mean-variance utility

Subjective mean-variance preferences without expected utility

Classical derivations of mean variance preferences have all relied upon the expected utility hypothesis. Some widespread experimental studies have uncovered that the expected utility model tends to be systematically violated in practice. Such findings would lead people to doubt the empirical relevance of the literature and the practical effectiveness of the portfolio selection which employ the ...

An Axiomatization of Subjective Mean Variance Utility under Ambiguity

Classical mean variance utility of Markowitz [1952] and Tobin [1958] have relied on objective expected utility hypothesis. This paper presents a choice-based axiomatization of mean variance utility, in a Savage-type setting of ambiguity, which neither assumes nor implies that individual’s preferences over portfolios conform to the expected utility hypothesis.

Linear Risk Tolerance and Mean-Variance Utility Functions

The concept of linear risk tolerance is transferred from the expected utility framework to the two-parameter, mean-variance approach. We show how the requirement of a hyperbolical Arrow-Pratt index translates from the EU-approach into a condition on the marginal rate of substitution between return and risk in the two-parameter approach. As a spin-off from this translation, we derive a specific ...

The Test of Mean-Variance Approximations to Non-Expected Utility

This article tests the performance of the mean-variance approximations to non-expected utility functions. Previous studies justify mean-variance analysis only in the context of expected utility theory by demonstrating the excellent empirical performance of the mean-variance approximations to two of the commonly used utility functions in the study of expected utility: the power and exponential u...

Mean-variance versus expected utility in dynamic investment analysis