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334 THE JOURNAL OF BUSINESS
myopic when yields in the various periods are nonindependent, contrary to Mossin's
assertion. 12
VIII. CONCLUDING REMARKS
In view of the difficulty of estimating future yields and their apparent serial correlation,
the myopic property of the logarithmic utility functions is, of course,
highly significant. However, this function also has other attractive properties." Perhaps
the most important of these is the property that maximization of the expected
logarithm of end-of-period capital subject to (32) and (33) in each period also
maximizes the expected growth rate of capital, whether returns are serially correlated
14 or not. 15
As Mossin points out, the portfolio decision is in general not independent of the
consumption decision. A realistic model of the investor's decision problem must,
therefore, include consumption as a decision variable and a preference function for
evaluating consumption programs. Consumption-investment models of this type
have been developed by Hakansson, both when investment yields are serially correlated
16 and when they are not. 17
12 Mossin, p. 222.
13 Some of the properties are reviewed in Nils Hakansson and Tien-Ching Liu, "Optimal Growth Portfolios
When Yields Are Serially Correlated," Review of Economics and Statistics 52 (November 1970):
385-94.
" Ibid.
16 Henry Latane, "Criteria for Choice among Risky Ventures," Journal of Political Economy 67 (April
1959): 144-55; and Leo Breiman, "Optimal Gambling Systems for Favorable Games," Fourth Berkeley
Symposium on Probability and Mathematical Statistics (Berkeley: University of California Press, 1961).
16 Hakansson, "Optimal Entrepreneurial Decisions . . ." (see n. 11 above),
17 Hakansson, "Optimal Investment . . ." (n. 4 above); and "Optimal Investment and Consumption
Strategies under Risk, an Uncertain Lifetime, and Insurance," International Economic Review 10 (October
1969): 443-66.
3. MYOPIC PORTFOLIO POLICIES 411