Expected Utility

Bruce C. Dieffenbach ()
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Bruce C. Dieffenbach: Independent author

Chapter 60 in Conjugate Duality in Economic Analysis, 2026, pp 465-471 from Springer

Abstract: Abstract We analyze portfolio choice by an investor who maximizes the expected utility of the payoff. The setting is state space, in which the inner product is the second non-central moment. The conjugate of the expected utility of a payoff is the expected value of the conjugate of utility evaluated at the marginal utility. The stochastic discount factors set the budget constraint. The analysis parallels and generalizes the standard theory of a consumer maximizing utility subject to a budget constraint, except that the budget constraint involves the set of stochastic discount factors, not just a single price vector. The dual chooses a particular stochastic discount factor. The pricing payoff plays no special role in expected-utility maximization. We analyze both constant relative risk aversion and constant absolute risk aversion.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-032-21396-9_60

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DOI: 10.1007/978-3-032-21396-9_60

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