Portfolio Choice and Risk

Jose Encarnacion

No 198307, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: Risk aversion and the riskiness of assets are interpreted in terms of a model of portfolio choice where the maximand is conditional on the probability of satisfying a minimum constraint on the future value of the portfolio. It is a consequence that the riskiness of the average asset in the portfolio increases with wealth, and when expected value is the maximand, low-risk low-return assets are inferior goods. The model also gives straightforward explanations of the Allais paradox and other puzzling patterns of choice under risk.

Date: 1983-06
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Published as UPSE Discussion Paper No. 1983-07, June 1983

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Journal Article: Portfolio choice and risk (1991)
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