Preference for Diversification with Similarity Considerations

Ani Guerdjikova ()
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Ani Guerdjikova: Cornell University, Postal: Uris Hall 462, Ithaca, NY 14853

No 04-48, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

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.

Pages: 22 pages
Date: 2004-11-24
Note: I am indebted to my advisor Juergen Eichberger for his helpful guidance and to Alexander Zimper for his helpful
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