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Diversification, convex preferences and non-empty core in the Choquet expected utility model

Jean-Marc Tallon () and Alain Chateauneuf ()

Economic Theory, 2002, vol. 19, issue 3, 509-523

Abstract: We show, in the Choquet expected utility model, that preference for diversification, that is, convex preferences, is equivalent to a concave utility index and a convex capacity. We then introduce a weaker notion of diversification, namely "sure diversification." We show that this implies that the core of the capacity is non-empty. The converse holds under concavity of the utility index, which is itself equivalent to the notion of comonotone diversification, that we introduce. In an Anscombe-Aumann setting, preference for diversification is equivalent to convexity of the capacity and preference for sure diversification is equivalent to non-empty core. In the expected utility model, all these notions of diversification are equivalent and are represented by the concavity of the utility index.

Keywords: Diversification; Choquet expected utility; Capacity; Convex preferences; Core. (search for similar items in EconPapers)
Date: 2001-12-20
Note: Received: July 27, 1999; revised version: November 7, 2000
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