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Review of Financial Studies Vol. 10 No. 1 1997

Recovery of Preferences from Observed Wealth in a Single Realization

Philip H. Dybvig1,2; L. C. G. Rogers3

1 Brookings Institution · 2 Washington University in St. Louis · 3 University of Bath

Abstract

Von Neumann-Morgenstern preferences over terminal consumption can be inferred from wealth on a single sample path when markets are complete and returns follow a known law in a neo-classical investment problem in either a discrete-time i.i.d. binomial model or a continuous-time diffusion model with a Gaussian state variable. Numerical results suggest that useful information about preferences can be obtained from even a single noisy sample of monthly observations of a portfolio over 5 years.

DOI
10.1093/rfs/10.1.151
Volume
10
Issue
1
Pages
151-174
Language
en
Sources
openalex crossref

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