A Friedman-Savage Consumer Almost Gambles : A Continuous Time Model of Consumption and Investment with Non-Concave Utility

We examine the consumption and portfolio decisions of an agent with Friedman-Savage type period utility in continuous time.We find the FriedmanSavage consumer does not gamble, but will aggressively invest in risky activities for wealth levels that support a minimum subsistence level of consumption. As the market premium of risk approaches zero, the agent… CONTINUE READING