Recovery of Preferences from Observed Wealth in a Single Realization

Philip Dybvig and L C G Rogers

The Review of Financial Studies, 1997, vol. 10, issue 1, 151-74

Abstract: Von Neumann-Morgenstern preferences over terminal consumption can be inferred from wealth on a single sample path when markets are complete and returns follow a known law in a neoclassical investment problem in either a discrete-time i.i.d. binomial model or a continuous-time diffusion model with a Gaussian state variable. Numerical results suggest that useful information about preferences can be obtained from even a single noisy sample of monthly observations of a portfolio over 5 years. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1997
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