A Small‐Sample Comparison of Estimators in the EU‐MGF Approach to Decision Making

Abstract

Abstract Estimation of the moment‐generating function lies at the core of the exponential utility—moment‐generating function approach to decision making. The small sample performances of the nonparametric empirical moment‐generating function and a parametric competitor have been examined under a variety of situations defined by the sample size, the level of risk aversion, and the degree to which the assumed parametric model approximates reality. Conditions under which each estimator would be preferred are obtained. Neither approach can be recommended unequivocally in all situations.

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