Utility function as a constructive instrument for investment decisions making

Abstract

Efficient investor's portfolio management is impossible without thorough employment of utility function - an instrument allowing to select proper investment means regarding investor's attitude towards risk. Utility formation is too complex process to be described with the help of only profitability and riskness variables. Real utility of investment depends on three parameters - profitability, risk and reability, which must be commensurated, and such utility function can be depicted in threedimensional space. For quantative valuation of the individual utility an expert system could be developed, which would be adapted for utility estimation goals.