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Investor behaviour is obviously highly important to understand financial market movements and financial decisions in general. It is even more important for investment advisors and asset managers to understand the risk profiles of their customers. With that respect, the Mifid directive requires financial advisors, in general, to be able to classify the risk profiles of their clients and be able to suggest the financial products that are in line with those profiles. In principle, the aforementioned institutions should somehow estimate their clients’ risk aversions. Still, risk aversion is a notion that presumes a specific way to represent behavior under uncertainty.
A so-called utility function is supposed to entirely capture behaviour under uncertainty, or more exactly...
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