Recovery of Preferences from Observed Wealth in a Single Realization
Philip H. Dybvig
Washington University in Saint Louis - John M. Olin Business School
L. C. G. Rogers
University of Cambridge - Centre for Mathematical Sciences
REVIEW OF FINANCIAL STUDIES, Vol. 10, No. 1
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 neoclassical 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 five years.
JEL Classification: E21Accepted Paper Series
Date posted: November 25, 1996
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