Imply about the consistency of investors preferences

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Suppose that we interview a group of investors who chose to invest 60% of their portfolio in large US stocks and 40% in the risk-free asset. We then ask them which asset from (2) that they prefer. Most answer that they prefer (b)(an asset with E(r) = 10% and ? = 20%) over (a)( an asset which has E(r) = 5% and ? = 0) . If we believe that the investors in the group are consistent in their choices, what does this imply about the quadratic utility function? If we believe that the quadratic utility function is the correct utility function, what does this imply about the consistency of investors’ preferences?

Reference no: EM132018618

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