Decision-making under risk: when is utility maximization equivalent to risk minimization?

Francesco Ruscitti, Ram Dubey () and Giorgio Laguzzi

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Abstract: Motivated by the analysis of a general optimal portfolio selection problem, which encompasses as special cases an optimal consumption and an optimal debt-arrangement problem, we are concerned with the questions of how a personality trait like risk-perception can be formalized and whether the two objectives of utility-maximization and risk-minimization can be both achieved simultaneously. We address these questions by developing an axiomatic foundation of preferences for which utility-maximization is equivalent to minimizing a utility-based shortfall risk measure. Our axiomatization hinges on a novel axiom in decision theory, namely the risk-perception axiom.

Date: 2023-11
New Economics Papers: this item is included in nep-rmg and nep-upt
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Journal Article: Decision-making under risk: when is utility-maximization equivalent to risk-minimization? (2024)
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