Volume 25, Number 4, 1007-1012, DOI: 10.1007/s00199-004-0490-8

Comparative statics of properness in two-moment decision models

Thomas Eichner

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Abstract

Properness has been introduced in the expected utility framework and it recently has been transfered to mean-variance utility functions. Here, we show that properness implies the slope of the mean-standard deviation indifference curve being convex in the standard deviation. This indifference curve property allows us to characterize the comparative static effects of changing the background risk and dependency structure in a simple portfolio choice model.

Keywords and Phrases:  Properness - Mean-standard deviation - Comparativestatics.

Received: 8 December 2003, Revised: 16 February 2004,
JEL Classification Numbers:   D81.

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