Title

On the strictly decreasing utility (value) premium of Friedman-Savage

Document Type

Other

Source Publication

Social Science Research Network

Publication Date

6-6-2014

Keywords

Utility premium, Value premium, Comparative statics, Changes in risk, Precautionary saving

Abstract

This paper re-investigates the utility premium of Friedman-Savage (1948). We show that monotone comparative statics predictions under changes in risk are assured by strictly decreasing utility premium alone. Applications to the demand for precautionary saving, the precautionary effort and the optimal portfolio problem are discussed. We also extend the results to non-expected-utility framework and show that the major precautionary saving results in expected-utility setting can be extended to the case of Selden/Kreps-Porteus preferences.

DOI

10.2139/ssrn.2446779

Publisher Statement

Copyright © 2014 Social Science Electronic Publishing, Inc

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Full-text Version

Publisher’s Version

Recommended Citation

Li, J., & Wang, J. (2014). On the strictly decreasing utility (value) premium of Friedman-Savage. Social Science Research Network. Retrieved from http://dx.doi.org/10.2139/ssrn.2446779