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- Title
Liquidity Preference and Risk Aversion with an Exponential Utility Function: Comment.
- Authors
Bierwag, G.O.
- Abstract
The paper about the liquidity preference and risk aversion with an exponential utility function is critiqued. There is an error in the paper's derivation which accounts for the conclusion. Furthermore, one can demonstrate that plunging, defined as avoidance of a secure asset, depends on the form of the utility function. The search for a risk averse utility function that precludes plunging under all circumstances would seem to be futile. Plunging defined in the more general context as not holding a secure asset can occur for risk averters who face appropriate probability distributions, have appropriate levels of wealth. An equation demonstrates this statement formally.
- Subjects
LIQUIDITY (Economics); UTILITY functions; ECONOMIC demand; FINANCE; PORTFOLIO management (Investments); MONEY supply; RISK aversion; RISK
- Publication
Review of Economic Studies, 1974, Vol 41, Issue 2, p301
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2296720