2009 | OriginalPaper | Chapter
Normally Distributed Admissible Choices are Optimal
Authors : James N. Bodurtha Jr, Qi Shen
Published in: The Mathematics of Preference, Choice and Order
Publisher: Springer Berlin Heidelberg
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Generally accepted observable behavior has led to the following classes of continuously differentiable utility functions,
u
(•):
I.
Nonsatiation axiom:
u′
> 0
II.
Risk aversion:
u′
> 0,
u″
< 0
Adopting the notation of (Bawa, 1975), let the uncertain prospects be characterized by random variables
xi,i
= 1,2,…,
n
+ 1, with known continuous probability distribution functions defined over an open interval
R
1
given by (
a, b
),
a
>
b
.