Abstract

This article focuses on the formulation of a method to solve the joint consumption-portfolio problem. The formulation presented allows the author to distinguish between risk preferences and time preferences when determining optimal consumption and asset demand. Classic Fisherian two-period diagrammatics are generalized. Period-two risk preferences are assumed to be independent of first-period consumption. The set of consumption-portfolio optima is expanded consistently with utility maximization. The ordinal certainty equivalent (OCE) representation of preferences over certain-uncertain consumption pairs developed by Larry Selden are a key element of the analyses presented.

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Citation

Selden, Larry. "A New Approach to the Joint Consumption-Portfolio Problem." Journal of Money, Credit and Banking 12, no. 3 (August 1980): 429-447.

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