More evidence on expected value-variance analysis versus direct utility maximization

The theoretical difficulties of the expected value‐variance (E‐V) criterion are well known. A number of recent research efforts test the criterion's effectiveness in a publicly traded securities environment. In contrast, this research explores the performance of the E‐V criterion using firm‐specific, nontradeable investments such as those made by small firms. The empirical example in the study is a small family proprietorship with limited investment opportunities in agricultural production activities. Results indicate the E‐V criterion performs well in selecting nontradeable investments that maximize expected utility. These results are consistent with results of earlier research dealing with tradeable securities.