Preference for diversification with similarity considerations

Ani Guerdjikova

No 04-48, Papers from Sonderforschungsbreich 504

Abstract: The paper studies the connection between the form of the similarity function of a decision-maker and his willingness to diversify. It is shown that preference for diversification obtain for both high and low aspiration levels if the similarity function is convex in the Euclidean distance. However, a decision-maker with a concave similarity function and relatively high aspiration level will fail to choose diversified acts, even if his utility function is concave.

Keywords: Case-Based Decision Theory; similarity; preference for diversification (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:mnh:spaper:2694

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