Talk:Exponential utility

Latest comment: 9 years ago by Bequw in topic Formula

Formula

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The formula is currently  , which is not the most convenient form. The most used form of this utility function is when only risk-aversion ( ) is allowed and the formula is  . The 1 is only for the convenience of having non-negative utility. If we want to allow non-risk-aversion behavior then we to allow for  . To keep utility increasing in c that means we need to divide by a. But in order to maintain the reason for the 1 we need to define it as   so that it stays positive (this is not the case with the current formula). We also need to define the formula for   (risk-neutrality) which should be  . I think we should note in the article the simple (only risk-aversion) formula and then the 2-case setup allowing any risk preference. --Bequw (talk) 22:09, 25 November 2014 (UTC)Reply