Comment: “Safety First–An Expected Utility Principle”

Nicolas Gressis and William A. Remaley

Journal of Financial and Quantitative Analysis, 1974, vol. 9, issue 6, 1057-1061

Abstract: Prior to 1952 there was no analytical theory available that would satisfactorily explain the well-known phenomenon of asset diversification by investors. Although the portfolio selection criteria of Markowitz [3] and that of Roy [5] both explain diversification, they are based on very different objectives. The objective of Markowitz's approach is to select the portfolio of securities that maximizes the expected utility of the investor, i.e., the EV criterion. The objective of Roy's approach is economic survival through selection of the portfolio that minimizes the probability of disaster, i.e., the safety-first (SF) criterion.

Date: 1974
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