5THE LIKELIHOOD OF VARIOUS RETURN DISTRIBUTIONS
With Anthony Tessitore, Ansel Tessitore, and Nilufer Usmen1
In prior chapters, it was argued that:
• The maximization of expected utility should be the standard for rational choice among probability distributions in single-period decision situations with known odds (Chapter 1).
• A careful choice from a mean-variance efficient frontier will approximately maximize expected utility for a wide range of concave (risk-averse) utility functions and real-world portfolio return distributions (Chapters 2 and 3).
• Variance is apparently at least as good as any other frequently proposed risk measure in approximately maximizing EU = Elog(1 + return) (Chapter 4).
We conclude from this that mean-variance ...