UNDER-DIVERSIFICATION AND THE ROLE OF BEST REPLY TO PATTERN

Uri Ben-Zion (), Ido Erev (), Ernan Haruvy and Tal Shavit ()
Additional contact information
Uri Ben-Zion: Dept. of Economics, Ben-Gurion University of the Negev, Israel
Ido Erev: Faculty of Industrial Engineering and Management, Technion, Israel

No 707, Working Papers from Ben-Gurion University of the Negev, Department of Economics

Abstract: Three experiments are presented that compare alternative explanations to the coexistence of risk aversion and under-diversification in investment decisions. The participants were asked to select one of several assets under two feedback conditions. In each case, one asset was a weighted combination of the other assets, allowing for lower volatility. The frequency of choice of the composite asset was highly sensitive to feedback condition. The composite asset was the least popular asset when the feedback included information concerning forgone payoffs, and increased in frequency when the feedback was limited to the obtained payoff. These results support the assertion that under-diversification can be a product of learning from feedback and in particular best reply to pattern.

Keywords: Risk; Diversification; Learning (search for similar items in EconPapers)
JEL-codes: C99 D81 D83 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://in.bgu.ac.il/en/humsos/Econ/Workingpapers/0707.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bgu:wpaper:0707

Access Statistics for this paper

More papers in Working Papers from Ben-Gurion University of the Negev, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Aamer Abu-Qarn ().