Asset Allocation Advice: Reconciling Expected Utility and Shortfall Risk Researchers studying the asset allocation problem for long-term investors have employed di®erent investor criterion functions. Some analyses have been based on maximization of expected utility. The most commonly used utilities are quadratic utility, which yields the ubiquitous mean-variance utility function underlying \mod...

The usefulness of including a buffer between fishery management targets and limits has frequently been acknowledged. This paper shows how decision theory can be used to set both targets and limits. Decision theory uses expected utility as the objective function to be maximized, and thus requires specification of a utility function. The utility function assumed here exhibits constant absolute ri...

Climate change involves uncertain probabilities of catastrophic risks, and very longterm consequences of current actions. Climate economics, therefore, is centrally concerned with the treatment of risk and time. Yet conventional assumptions about utility and optimal economic growth create a perverse connection between risk aversion and time preference, such that more aversion to current risks i...

We apply the mean-variance approach to analyze the risk-averse newsvendor problem with stockout cost. We first derive an explicit form and some new properties of the variance of the profit function. Then, under the assumption that demand follows the power distribution, and its special case the uniform distribution, we obtain the set of optimal ordering quantities. We also give a counterexample ...

This paper evaluates the pricing and ordering policies of a retailer, facing a price-dependent stochastic demand, within a newsvendor framework, under different degrees of risk tolerance and under a variety of optimizing objectives. These are (i) maximizing expected profit, for a retailer who may be risk-seeker, riskaverse or risk neutral; (ii) deriving a maximin strategy of maximizing a minimu...

This paper investigates the effect of accountability-the expectation on the side of the decision maker of having to justify his/her decisions to somebody else-on loss aversion. Loss aversion is commonly thought to be the strongest component of risk aversion. Accountability is found to reduce the bias of loss aversion. This effect is explained by the higher cognitive effort induced by accountabi...

The objective of this note is to understand the implications for consumption and portfolio choice of the separation of an investor’s risk aversion and elasticity of intertemporal substitution that is made possible by recursive utility, in contrast to expected utility where the two are dictated by the same parameter. In particular, we study whether the optimal dynamic consumption and portfolio d...