Document Type
Preprint
Publication Date
8-1-2024
Journal / Book Title
Theory and Decision
Abstract
Motivated by the analysis of a general optimal portfolio selection problem, which encompasses as special cases an optimal consumption and an optimal debt-arrangement problem, we are concerned with the questions of how a personality trait like risk-perception can be formalized and whether the two objectives of utility-maximization and risk-minimization can be both achieved simultaneously. We address these questions by developing an axiomatic foundation of preferences for which utility-maximization is equivalent to minimizing a utility-based shortfall risk measure. Our axiomatization hinges on a novel axiom in decision theory, namely the risk-perception axiom.
DOI
10.1007/s11238-023-09969-1
MSU Digital Commons Citation
Ruscitti, Francesco; Dubey, Ram Sewak; and Laguzzi, Giorgio, "Decision-making under risk: when is utility-maximization equivalent to risk-minimization?" (2024). Department of Economics Faculty Scholarship and Creative Works. 79.
https://digitalcommons.montclair.edu/economics-facpubs/79
Published Citation
Ruscitti, F., Dubey, R. S., & Laguzzi, G. (2023). Decision-making under risk: when is utility maximization equivalent to risk minimization?. arXiv preprint arXiv:2311.07269.