A Professor told me that Utility Optimization is academically beautiful but no trader really uses it. Why is that?

Most of the time it is computationally taxing.

QuoteOriginally posted by: janickgMost of the time it is computationally taxing.Is that the only reason?

Computationally infeasible might be a better description of why it is not used. Use the search facility on this website and the key words "utility theory". You'll find a number of discussions on this topic. Briefly, utility-based theories are much more ambitious than arbitrage-free theories in that they attempt to explain the pricing of underlyings as well as derivatives. It turns out to be very difficult to aggregate personal preferences to the market level. That and the fact that empirical work shows that people are not necessarily fully rational when it comes to many activities in life.

Ask a trader to quantify happiness into a utility function, there in itself is also a problem. Fine, you found the ability to maximize utility functions - but does that function truly represent the qualitative problem?

As i see it, it's one of the main difference between practicioners and those who pursue Academy Finance They always have the utility functions provided beforehand