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What are asset demand tests of expected utility really testing?


Kübler, Felix; Selden, Larry; Wei, Xiao (2017). What are asset demand tests of expected utility really testing? Economic Journal, 127(601):784-808.

Abstract

Assuming the classic contingent claim setting, a number of financial asset demand tests of Expected Utility have been developed and implemented in experimental settings. However the domain of preferences of these asset demand tests differ from the mixture space of distributions assumed in the traditional binary lottery laboratory tests of von Neumann-Morgenstern Expected Utility preferences. We derive new sets axioms that are necessary and sufficient for preferences over contingent claims to be representable by an Expected Utility function. We also indicate the additional axioms required to extend the representation to the more general case of preferences over risky prospects.

Abstract

Assuming the classic contingent claim setting, a number of financial asset demand tests of Expected Utility have been developed and implemented in experimental settings. However the domain of preferences of these asset demand tests differ from the mixture space of distributions assumed in the traditional binary lottery laboratory tests of von Neumann-Morgenstern Expected Utility preferences. We derive new sets axioms that are necessary and sufficient for preferences over contingent claims to be representable by an Expected Utility function. We also indicate the additional axioms required to extend the representation to the more general case of preferences over risky prospects.

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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:May 2017
Deposited On:08 Sep 2017 11:37
Last Modified:19 Feb 2018 08:38
Publisher:Wiley-Blackwell Publishing, Inc.
ISSN:0013-0133
OA Status:Green
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.1111/ecoj.12481
Related URLs:http://onlinelibrary.wiley.com/doi/10.1111/ecoj.12481/full (Publisher)
Other Identification Number:merlin-id:14000

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