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Exponential utility and ruin constraints

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1 Author(s)
Snow, P. ; Dept. of Mech. Eng., New Hampshire Univ., Durham, NH, USA

A buying price equation for lotteries identical to that implied by exponential utility is derived using a constraint on the probability of ruin for indefinitely repeated play. Applications explored are utility parameter assessment and the axiom-free motivation of a decision rule indistinguishable from maximizing expected exponential utility.

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Systems, Man and Cybernetics, IEEE Transactions on  (Volume:SMC-14 ,  Issue: 5 )