Quadratic utility functions require fixes when the probability of decreasing utility is large

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Quadratic utility functions possess a maximum (bliss point) beyond which further increases lead to decreasing utility, creating severe limitations that require modifications or truncation when higher returns risk moving past this threshold.

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Evidence for · 3

doi.org: A Note on the Implications of Quadratic Utility for Portfolio Theory

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doi.org: A Note on the Implications of Quadratic Utility for Portfolio Theory. doi.org. https://doi.org/10.2307/2329767

Notes quadratic utility implies a maximum beyond which marginal utility declines, requiring restricted returns.

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sciencedirect.com: On the computation of optimal monotone mean–variance portfolios via truncated quadratic utility ☆

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sciencedirect.com: On the computation of optimal monotone mean–variance portfolios via truncated quadratic utility ☆. sciencedirect.com. https://www.sciencedirect.com/science/article/abs/pii/S0304406812000614

Discusses computing portfolios via truncated quadratic utility to address its standard limitations.

Source citation format

link.springer.com: Portfolio decision with a quadratic utility and inflation risk

Recorded source metadata

link.springer.com: Portfolio decision with a quadratic utility and inflation risk. link.springer.com. https://link.springer.com/article/10.1186/s13662-018-1834-1

Notes quadratic utility is symmetric to a bliss point where further consumption lowers utility.

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first checked01 Aug 2026

judged → SUPPORTED · 7501 Aug 2026

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