UZH-Logo

Maintenance Infos

Asset Demand Based Tests of Expected Utility Maximization


Kübler, Felix; Selden, Larry; Wei, Xiao (2014). Asset Demand Based Tests of Expected Utility Maximization. American Economic Review, 104(11):3459-3480.

Abstract

In the neoclassical model of consumer behavior, considerable work has been done investigating when a consumer's demand behavior can be described as having been derived from utility maximization. However, most discussions are in a certainty world. We expand on prior analyses in an uncertainty setting by providing conditions under which contingent claim and asset demands will be consistent with state independent Expected Utility maximization. The question is addressed using two different traditional approaches. First given the analytical form of the demand functions, we derive necessary and sufficient conditions such that the consumer's behavior can be rationalized by an Expected Utility function. Second, we provide a necessary and sufficient condition for a finite set of observations on prices, probabilities and quantities to be consistent with Expected Utility maximization for the case of a single commodity in each state. This condition is shown to be analogous to the strong axiom of revealed preference in classical certainty demand theory. For both approaches, we consider the complete and incomplete asset market cases.

In the neoclassical model of consumer behavior, considerable work has been done investigating when a consumer's demand behavior can be described as having been derived from utility maximization. However, most discussions are in a certainty world. We expand on prior analyses in an uncertainty setting by providing conditions under which contingent claim and asset demands will be consistent with state independent Expected Utility maximization. The question is addressed using two different traditional approaches. First given the analytical form of the demand functions, we derive necessary and sufficient conditions such that the consumer's behavior can be rationalized by an Expected Utility function. Second, we provide a necessary and sufficient condition for a finite set of observations on prices, probabilities and quantities to be consistent with Expected Utility maximization for the case of a single commodity in each state. This condition is shown to be analogous to the strong axiom of revealed preference in classical certainty demand theory. For both approaches, we consider the complete and incomplete asset market cases.

Citations

4 citations in Web of Science®
6 citations in Scopus®
Google Scholar™

Altmetrics

Downloads

36 downloads since deposited on 26 Nov 2014
26 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 November 2014
Deposited On:26 Nov 2014 16:40
Last Modified:05 Apr 2016 18:33
Publisher:American Economic Association
ISSN:0002-8282
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.1257/aer.104.11.3459
Official URL:https://www.aeaweb.org/articles.php?doi=10.1257/aer.104.11.3459
Other Identification Number:merlin-id:8240
Permanent URL: https://doi.org/10.5167/uzh-101280

Download

[img]
Preview
Filetype: PDF
Size: 224kB
View at publisher

TrendTerms

TrendTerms displays relevant terms of the abstract of this publication and related documents on a map. The terms and their relations were extracted from ZORA using word statistics. Their timelines are taken from ZORA as well. The bubble size of a term is proportional to the number of documents where the term occurs. Red, orange, yellow and green colors are used for terms that occur in the current document; red indicates high interlinkedness of a term with other terms, orange, yellow and green decreasing interlinkedness. Blue is used for terms that have a relation with the terms in this document, but occur in other documents.
You can navigate and zoom the map. Mouse-hovering a term displays its timeline, clicking it yields the associated documents.

Author Collaborations