Experimental Evidence on Alternative Portfolio Decisions Rules.

This article examines the relation between return and risk for securities and portfolios. The selection of an optimal portfolio may therefore be reduced to the allocation of wealth between an efficient risky asset and a risk free asset. The portfolio an investor considers optimal is considered a function of his risk aversion. If the amount invested in the risky asset increases (decreases) with wealth, the investor has decreasing (increasing) absolute risk aversion. If the fraction of wealth invested in the risky asset increases (decreases) with wealth, the investor has decreasing (increasing) relative risk aversion.