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The Case Against Power Utility and a Suggested Alternative: Resurrecting Exponential Utility

Alpanda, Sami et al.
Munich Personal RePEc Archive · Reports
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Utility modeled as a power function is commonly used in the literature despite the fact that it is unbounded and generates asset pricing puzzles. The unboundedness property leads to St. Petersburg paradox issues and indifference to compound gambles, but these problems have largely been ignored. The
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