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Safety First — An Expected Utility Principle

Published online by Cambridge University Press:  19 October 2009

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
Copyright
Copyright © School of Business Administration, University of Washington 1972

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References

[1]Baumol, W. J.An Expected Gain-Confidence Limit Criterion for Portfolio Selection.” Management Science, 10, No. 1, October 1963, pp. 174182.CrossRefGoogle Scholar
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[10]Lintner, J.Security Price, Risk and Maximal Gains from Diversification.” The Journal of Finance, 20, December 1965, pp. 587615.Google Scholar
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[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. 431449.CrossRefGoogle Scholar
[15]Samuelson, P.A.General Proof that Diversification Pays.” Journal of Financial and Quantitative Analysis, 2, 1967, pp. 113.CrossRefGoogle Scholar
[16]Sharpe, W.F. “Capital Assets Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, 1964, pp. 425442.Google Scholar
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