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January 2nd, 2017, 03:40 AM   #1
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Utility on negative wealth

Hi all,

can anyone kindly explain the intuition/interpretation behind defining utility on negative wealth (such as exponential utility)?

Thank you!
Natt

Last edited by skipjack; January 2nd, 2017 at 03:55 AM.
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January 2nd, 2017, 07:46 AM   #2
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First, there is nothing that precludes the functions of economic theory from being defined piece-wise. It is usual in economics that interest is focused on a very small domain (the neighborhood of a point of intersection or of tangency for example) so that the nature of the function outside that restricted domain is irrelevant. Only the very best economists manage to remember consistently that the functions of economic theory are highly simplified idealizations.

Second, the opposite of wealth is debt. Just ask a few graduates about how warm and fuzzy they feel about student loan debt.
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