David Berns - How do you build a portfolio for a human being? (S4E16)
Flirting with Models
Portfolio Theory - Skew and Curtosis
In the book, one of the key points is that modern portfolio theory is really just mathematically it's a second order approximation of sort of expected utility maximization. To truly capture investor preferences, we a need to include those third and fourth moments, right? Skew and curtosis, can you expand on that a little whyis that so important for capturing maybe the full picture of someone's utility? Yes. It all stems from what we learned in prospect theory. Before prospect theory, risk aversion was king, a power law. Utility was king. And then once prospect theory came along, we learned that human beings, their risk profile, is not well defined by a single paler
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