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Recovery of Preferences from Observed Wealth in a Single Realization

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  • Dybvig, Philip H
  • Rogers, L C G

Abstract

Von Neumann-Morgenstern preferences over terminal consumption can be inferred from wealth on a single sample path when markets are complete and returns follow a known law in a neoclassical investment problem in either a discrete-time i.i.d. binomial model or a continuous-time diffusion model with a Gaussian state variable. Numerical results suggest that useful information about preferences can be obtained from even a single noisy sample of monthly observations of a portfolio over 5 years. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Suggested Citation

  • Dybvig, Philip H & Rogers, L C G, 1997. "Recovery of Preferences from Observed Wealth in a Single Realization," The Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 151-174.
    • Handle: RePEc:oup:rfinst:v:10:y:1997:i:1:p:151-74
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    Cited by:

    1. Felix Kübler & Herakles Polemarchakis, 2017. "The Identification of Beliefs From Asset Demand," Econometrica, Econometric Society, vol. 85, pages 1219-1238, July.
    2. Bernard, Carole & Chen, Jit Seng & Vanduffel, Steven, 2015. "Rationalizing investors’ choices," Journal of Mathematical Economics, Elsevier, vol. 59(C), pages 10-23.
    3. Evan Gatev & Stephen Ross, 2000. "Rebels, Conformists, Contrarians And Momentum Traders," Yale School of Management Working Papers ysm137, Yale School of Management, revised 01 Jan 2003.
    4. Yeung Lewis Chan & Leonid Kogan, 2002. "Catching Up with the Joneses: Heterogeneous Preferences and the Dynamics of Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1255-1285, December.
    5. Stephen A. Ross, 2011. "The Recovery Theorem," NBER Working Papers 17323, National Bureau of Economic Research, Inc.
    6. John R. J. Thompson & Longlong Feng & R. Mark Reesor & Chuck Grace & Adam Metzler, 2021. "Measuring Financial Advice: aligning client elicited and revealed risk," Papers 2105.11892, arXiv.org.
    7. Haoyang Cao & Zhengqi Wu & Renyuan Xu, 2024. "Inference of Utilities and Time Preference in Sequential Decision-Making," Papers 2405.15975, arXiv.org, revised Jun 2024.
    8. Phillip Monin, 2014. "On a dynamic adaptation of The Distribution Builder approach to investment decisions," Quantitative Finance, Taylor & Francis Journals, vol. 14(5), pages 749-760, May.

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