Quotation Speckbacher, Gerhard. 2009. Comparing financial investments by their state dependent returns: A one-way log utility representation. European Journal of Operational Research (EJOR) 193 323-328.


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Abstract

In a standard single-period model under risk, we formalize and discuss an intuitive criterion for the binary comparison of financial investments. Two investments - x and y - are compared by calculating the present value of x's payoffs using the state dependent returns of y as discount factors. The induced preference is asymmetric but exhibits intransitive indifference. If the feasible set is convex, then the criterion selects a unique maximum element. Interestingly, it can be shown that the induced preference can be represented by a one-way expected utility representation employing logarithmic utility. Besides giving a relevant and illustrative example for a one-way utility representation, this result provides a new interpretation of using logarithmic utility for expected utility based decision-making.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal European Journal of Operational Research (EJOR)
Citation Index SCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, INF-A, STRAT-A, WH-A
Language English
Title Comparing financial investments by their state dependent returns: A one-way log utility representation
Volume 193
Year 2009
Page from 323
Page to 328
Reviewed? Y

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Speckbacher, Gerhard (Details)
Organization
Institute for Strategy and Managerial Accounting IN (Details)
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