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Mean-variance utility

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  • Nakamura, Yutaka

Abstract

The mean-variance utility postulates that random variables with the same mean and variance should be equally desirable. This paper presents and discusses necessary and sufficient preference-based axioms for the existence of mean-variance utility in which any condition on variances but mean-values is not explicitly specified. Furthermore, we investigate necessary and sufficient axioms for four types of additively separable forms of mean and variance in the utility representation.

Suggested Citation

  • Nakamura, Yutaka, 2015. "Mean-variance utility," Journal of Economic Theory, Elsevier, vol. 160(C), pages 536-556.
    • Handle: RePEc:eee:jetheo:v:160:y:2015:i:c:p:536-556
    DOI: 10.1016/j.jet.2015.10.001
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    References listed on IDEAS

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    1. Peter H. Farquhar & Yutaka Nakamura, 1987. "Constant Exchange Risk Properties," Operations Research, INFORMS, vol. 35(2), pages 206-214, April.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    3. Epstein, Larry G, 1985. "Decreasing Risk Aversion and Mean-Variance Analysis," Econometrica, Econometric Society, vol. 53(4), pages 945-961, July.
    4. Safra, Zvi & Segal, Uzi, 1998. "Constant Risk Aversion," Journal of Economic Theory, Elsevier, vol. 83(1), pages 19-42, November.
    5. Bailey,Roy E., 2005. "The Economics of Financial Markets," Cambridge Books, Cambridge University Press, number 9780521612807, October.
    6. L. Eeckhoudt & C. Gollier & H. Schlesinger, 2005. "Economic and financial decisions under risk," Post-Print hal-00325882, HAL.
    7. Nakamura, Yutaka, 2002. "Lexicographic quasilinear utility," Journal of Mathematical Economics, Elsevier, vol. 37(3), pages 157-178, May.
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    Cited by:

    1. Qu, Xiangyu, 2017. "Subjective mean–variance preferences without expected utility," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 31-39.
    2. Dimitrios Koutmos & James E. Payne, 2021. "Intertemporal asset pricing with bitcoin," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 619-645, February.
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    4. Sarantis Tsiaplias & Qi Zeng & Guay Lim, 2021. "Retail investor expectations and trading preferences," Melbourne Institute Working Paper Series wp2021n27, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    5. Claudio Boido & Antonio Fasano, 2023. "Mean-variance investing with factor tilting," Risk Management, Palgrave Macmillan, vol. 25(2), pages 1-24, June.
    6. Drechsler, Martin, 2023. "Ising models to study effects of risk aversion in socially interacting individuals," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 632(P1).

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    More about this item

    Keywords

    Mean-variance analysis; Mean-variance utility; Decision making under risk; Constant risk aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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