Hostname: page-component-8448b6f56d-cfpbc Total loading time: 0 Render date: 2024-04-24T05:45:35.611Z Has data issue: false hasContentIssue false
  • English
  • Français

The Role of Utility in the State-Preference Framework

Published online by Cambridge University Press:  19 October 2009

Robert G. Bowman
Get access Rights & Permissions [Opens in a new window]

Extract

State-preference theory has developed as a choice-theoretic framework through which many problems of finance and economics dealing with time and uncertainty can be analyzed. Hirshleifer [3], [4], [5], [6] has used the approach to provide significant insights to areas such as production and exchange, investment decisions, and speculative behavior. However, the theory has not made progress in attempting to incorporate state-labeled utility functions into the body of the theory. This paper will develop a method of graphically and analytically allowing for differing utility functions across states. As a further step, the impact of belief-deviation upon the tangency optimum will be discussed. Finally, the significance of these findings upon the consideration of risk will be discussed.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 10 , Issue 2 , June 1975 , pp. 341 - 352
Copyright
Copyright © School of Business Administration, University of Washington 1975

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Arrow, K. J. “The Role of Securities in the Optimal Allocation of Riskbearing.” The Review of Economic Studies, vol. 30, no. 86 (April 1964).Google Scholar
[2]Debreu, Gerard. Theory of Value. New York: John Wiley & Sons, Inc., 1959.Google Scholar
[3]Hirshleifer, Jack. “Foundations of the Theory of Speculation: Information, Risk, and Markets.” Working Paper No. 189, Western Management Science Institute, University of California, Los Angeles, revised June 1972.Google Scholar
[4]Hirshleifer, Jack. “Investment Decision under Uncertainty: Applications of the State-Preference Approach.” Quarterly Journal of Economics, vol. 80, no. 2 (May 1966).CrossRefGoogle Scholar
[5]Hirshleifer, Jack. “Investment Decision under Uncertainty: Choice-Theoretic Approaches.” Quarterly Journal of Economics, vol. 79, no. 4 (November 1965).CrossRefGoogle Scholar
[6]Hirshleifer, Jack. Investment, Interest, and Capital. Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1970.Google Scholar
[7]von Neumann, John, and Morgenstern, Oskar. Theory of Games and Economic Behavior. Princeton, N.J.: Princeton University Press, 1953.Google Scholar