Mean-variance versus expected utility in dynamic investment analysis

Mean-variance versus expected utility in dynamic investment analysis

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 ...

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...

Neurobiological studies of risk assessment: a comparison of expected utility and mean-variance approaches.

When modeling valuation under uncertainty, economists generally prefer expected utility because it has an axiomatic foundation, meaning that the resulting choices will satisfy a number of rationality requirements. In expected utility theory, values are computed by multiplying probabilities of each possible state of nature by the payoff in that state and summing the results. The drawback of this...

Measures of Risk Attitudes: Correspondences between Mean-Variance- and Expected Utility Approach∗

* We thank Fatma Lajeri-Chaherli for helpful comments on a previous version. We also owe thanks to Marco LiCalzi and two anonymous referees for advice and fruitful criticism.