Eric Falkenstein’s text “Risk and Return” presents exhaustive evidence that human utility functions are noticably different than standard economic theory—notably the presence of a large “wealthier than my neighbors” term in our human utility function:
He applies this to finance, and discovers that if people mostly care about relative wealth, then riskier investments will not see higher returns in the long run; which is very interesting.
Eric Falkenstein’s text “Risk and Return” presents exhaustive evidence that human utility functions are noticably different than standard economic theory—notably the presence of a large “wealthier than my neighbors” term in our human utility function:
http://www.efalken.com/RiskReturn.html
He applies this to finance, and discovers that if people mostly care about relative wealth, then riskier investments will not see higher returns in the long run; which is very interesting.