Hakansson, Nils H.
August 1970
Quarterly Journal of Economics;Aug70, Vol. 84 Issue 3, p472
Academic Journal
This article discusses the importance of two concave segments separated by a convex segment to individual's utility of wealth function. The coexistence of gambling and insurance was found to be due to overstatement of low probabilities and understatement of high probabilities. The utility function that a person works with today should be sensitive to the demands or investment opportunities that he perceives will be available to him in the future. The objective of the individual is postulated to be the maximization of expected utility from consumption over his remaining lifetime.


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