On the strictly decreasing utility (value) premium of Friedman-Savage

Jingyuan LI, Jianli WANG

Research output: Other contributionOther outputs

Abstract

This paper re-investigates the utility premium of Friedman-Savage (1948). We show that monotone comparative statics predictions under changes in risk are assured by strictly decreasing utility premium alone. Applications to the demand for precautionary saving, the precautionary effort and the optimal portfolio problem are discussed. We also extend the results to non-expected-utility framework and show that the major precautionary saving results in expected-utility setting can be extended to the case of Selden/Kreps-Porteus preferences.
Original languageEnglish
DOIs
Publication statusPublished - 6 Jun 2014

Publication series

NameSocial Science Research Network

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Precautionary saving
Premium
Value premium
Non-expected utility
Prediction
Monotone comparative statics
Expected utility
Optimal portfolio

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LI, Jingyuan ; WANG, Jianli. / On the strictly decreasing utility (value) premium of Friedman-Savage. 2014. (Social Science Research Network).
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On the strictly decreasing utility (value) premium of Friedman-Savage. / LI, Jingyuan; WANG, Jianli.

2014. (Social Science Research Network).

Research output: Other contributionOther outputs

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AB - This paper re-investigates the utility premium of Friedman-Savage (1948). We show that monotone comparative statics predictions under changes in risk are assured by strictly decreasing utility premium alone. Applications to the demand for precautionary saving, the precautionary effort and the optimal portfolio problem are discussed. We also extend the results to non-expected-utility framework and show that the major precautionary saving results in expected-utility setting can be extended to the case of Selden/Kreps-Porteus preferences.

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