The Application of Expected-Utility Theory to the Choice of Investment Channels in a Defined-Contribution Retirement Fund

This study examines the practical application of a system for the derivation of member utility functions for the purpose of recommending investment-channel choice to members of a defined-contribution retirement fund. The utility functions of post-retirement benefits from members of a defined-contribution fund are elicited. The risk aversion of each member is measured and the results are compared with a standard risk-tolerance assessment method.

Keywords: Defined contribution, Investment-channel choice, Risk tolerance, Risk aversion, Utility function.