Subjective mean-variance preferences without expected utility

Classical derivations of mean variance preferences have all relied upon the expected utility hypothesis. Some widespread experimental studies have uncovered that the expected utility model tends to be systematically violated in practice. Such findings would lead people to doubt the empirical relevance of the literature and the practical effectiveness of the portfolio selection which employ the mean variance model. In this paper, I postulate a set of axioms, in a setting of subjective uncertainty, and demonstrate that my axiom set implies that the investor assigns subjective probability to events and judges each portfolio solely on the basis of mean and variance of its implied distribution over returns, but does not necessarily rank portfolio according to the expected utility. This subjective mean variance model remains intact with a wide body of observed behavior under uncertainty, which are inconsistent with the hypothesis of expected utility maximization. In addition, the subjective probability is essentially nonnormal, which ties together a wide body of empirical observations in finance. JEL classification: D7; D8.