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UTILITY THEORY FRONT TO BACK — INFERRING UTILITY FROM AGENTS' CHOICES
International Journal of Theoretical and Applied Finance
We pursue an inverse approach to utility theory and consumption & investment problems. Instead of specifying an agent's utility function and deriving her actions, we assume we observe her actions (i.e. her consumption and investment strategies) and ask if it is possible to derive a utility function for which the observed behaviour is optimal. We work in continuous time both in a deterministic and stochastic setting. In the deterministic setup, we find that there are infinitely many utilitydoi:10.1142/s0219024914500186 fatcat:3oxhtru42fdbjd27zd6c7jou6q