Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-15T12:38:09.755Z Has data issue: false hasContentIssue false
  • English
  • Français

Safety First — An Expected Utility Principle

Published online by Cambridge University Press:  19 October 2009

Haim Levy  and
Marshall Sarnat
Get access Rights & Permissions [Opens in a new window]

Extract

The theory of choice under conditions of certainty has been extended by Von Neumann and Morgenstern [8], Friedman and Savage [5], Marschak [13], and others to conditions involving risk by assuming that individuals maximize their expected utility. The application of this theory to portfolio selection, to efficiency criteria, and to the explanation of the well-known phenomenon of diversification of assets has been carried further by Markowitz [11 and 12], Tobin [17], Samuelson [15], Sharpe [16], and Lintner [10], and more recently by Hadar and Russell [5] and Hanoch and Levy [8].

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 7 , Issue 3 , June 1972 , pp. 1829 - 1834
Copyright
Copyright © School of Business Administration, University of Washington 1972

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Baumol, W. J. “An Expected Gain-Confidence Limit Criterion for Portfolio Selection.” Management Science, 10, No. 1, October 1963, pp. 174–182.Google Scholar
[2]Cohen, J. B., and Zinbarg, E. D.. Investment Analysis and Portfolio Management. Homewood, Ill.: Richard D. Irwin, Inc., 1967.Google Scholar
[3]Cramer, H.Mathematical Methods of Statistics. Princeton, N.J.: Princeton University Press, 1946.Google Scholar
[4]Feldstein, J. “Mean Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection.” Review of Economic Studies, 36, January 1968.Google Scholar
[5]Friedman, M., and Savage, L. J.. “The Utility Analysis of Choices Involving Risk.” The Journal of Political Economy, August 1948, pp. 279–304.Google Scholar
[6]Hadar, J., and Russell, W. R.. “Rules for Ordering Uncertain Prospects.” American Economic Review, 59, No. 7, March 1969, pp. 25–34.Google Scholar
[7]Hanoch, G., and Levy, H.. “Efficient Portfolio Selection with Quadratic and Cubic Utility.” Journal of Business, April 1970.Google Scholar
[8]Hanoch, G., and Levy, H.. “The Efficiency Analysis of Choices Involving Risk.” Review of Economic Studies, 36, No. 3, July 1969, pp. 335–346.CrossRefGoogle Scholar
[9]Levy, H., and Sarnat, M.. “A Note on Indifference Curves and Uncertainty.” Swedish Journal of Economics, 71, No. 3, September 1969, pp. 206–208.CrossRefGoogle Scholar
[10]Lintner, J. “Security Price, Risk and Maximal Gains from Diversification.” The Journal of Finance, 20, December 1965, pp. 587–615.Google Scholar
[11]Markowitz, H. M. “Portfolio Selection.” The Journal of Finance, 6, No. 1, March 1952, pp. 77–91.Google Scholar
[12]Markowitz, H. M.Portfolio Selection. New York: Wiley, 1959.Google Scholar
[13]Marschak, J. “Rational Behavior, Uncertain Prospects, and Measurable Utility.” Econometrica, 18, No. 2, April 1950; reprinted as Cowles Commission Papers, New Series, No. 43.CrossRefGoogle Scholar
[14]Roy, A. “Safety First and the Holding of Assets.” Econometrica, 20, No. 3, July 1952, pp. 431–449.Google Scholar
[15]Samuelson, P.A. “General Proof that Diversification Pays.” Journal of Financial and Quantitative Analysis, 2, 1967, pp. 1–13.Google Scholar
[16]Sharpe, W.F. “Capital Assets Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, 1964, pp. 425–442.Google Scholar
[17]Tobin, J. “Liquidity Preference as Behavior Towards Risk.” Review of Economic Studies, 25, 1957–1958, pp. 65–68.Google Scholar
[18]Von Neumann, J., and Morgenstern, O.. Theory of Games and Economic Behavior, 3rd ed., Princeton, N.J.: Princeton University Press, 1953.Google Scholar