Investment behavior under traditional nance Utility: level of satisfaction from a given wealth eve The higher the wealth level, the higher the utility An individual tries to maximize the utility level If the wealth is uncertain due to investment in risky assets whose future payoff are uncertain, the individual will maximize the expected utility of wealth Investors exhibit risk-aversion behaviorInvestment behavior under traditional finance • Utility: level of satisfaction from a given wealth level; • The higher the wealth level, the higher the utility. An individual tries to maximize the utility level. • If the wealth is uncertain due to investment in risky assets whose future payoff are uncertain, the individual will maximize the expected utility of wealth. • Investors exhibit risk-aversion behavior