Is it possible to infer investor's utility function from the set of decisions she is making?

Let's assume for simplicity that the market consists of a single traded asset whose return distribution is stationary and known to the agents. We are also given a set of trades made by a particular investor in this market. We also know the wealth of an investor. How do we estimate the investor's utility function from this data?

  • $\begingroup$ If you liked my answer you could upvote and accept it - Thank you :-) $\endgroup$ – vonjd Jul 16 '13 at 16:51

The problem is to find the best functional form of the utility function plus estimate its parameters.

A good starting point is the following draft chapter from an upcoming book which gives a good intuition and many examples: Preferences by Andrew Ang

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