But under conditions of uncertainty, expected utility is not a monotonic function of expected wealth.
Under uncertainty, you must have a risk aversion parameter -- even if you try to avoid specifying one, your choice will point to an implicit one.
You can also use the concept of the certainty equivalent to sorta side-step the uncertainty.
Under uncertainty, you must have a risk aversion parameter -- even if you try to avoid specifying one, your choice will point to an implicit one.
A made-up risk aversion parameter might also be a reasonable way to go about things, though making up a utility function and using the implicit risk aversion from that seems easier. The personal financial planning advice I've seen doesn't use any quantitative approach whatsoever to price risk, which leads to people just going with their gut, which is what I'm calling dumb.
If it's worth saying, but not worth its own post (even in Discussion), then it goes here.
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