IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2304.08059.html
   My bibliography  Save this paper

Non-diversified portfolios with subjective expected utility

Author

Listed:
  • Christopher P. Chambers
  • Georgios Gerasimou

Abstract

Diversification is the typical investment strategy of risk-averse agents. However, non-diversified positions that allocate all resources to a single asset, state of the world or revenue stream are common too. We show that whenever finitely many non-diversified demands under uncertainty are compatible with risk-averse subjective expected utility maximization under strictly positive beliefs, they are also rationalizable under the same beliefs by many qualitatively distinct risk-averse as well as risk-neutral and risk-seeking preferences.

Suggested Citation

  • Christopher P. Chambers & Georgios Gerasimou, 2023. "Non-diversified portfolios with subjective expected utility," Papers 2304.08059, arXiv.org, revised Oct 2024.
    • Handle: RePEc:arx:papers:2304.08059
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2304.08059
    File Function: Latest version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Federico Echenique & Kota Saito, 2015. "Savage in the Market," Econometrica, Econometric Society, vol. 83(4), pages 1467-1495, July.
    2. Matthew Polisson & John K.-H. Quah & Ludovic Renou, 2020. "Revealed Preferences over Risk and Uncertainty," American Economic Review, American Economic Association, vol. 110(6), pages 1782-1820, June.
    3. Ogaki, Masao & Zhang, Qiang, 2001. "Decreasing Relative Risk Aversion and Tests of Risk Sharing," Econometrica, Econometric Society, vol. 69(2), pages 515-526, March.
    4. Syngjoo Choi & Raymond Fisman & Douglas Gale & Shachar Kariv, 2007. "Consistency, Heterogeneity, and Granularity of Individual Behavior under Uncertainty," Economics Working Papers 0076, Institute for Advanced Study, School of Social Science.
    5. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    6. Epstein, Larry G., 2000. "Are Probabilities Used in Markets ?," Journal of Economic Theory, Elsevier, vol. 91(1), pages 86-90, March.
    7. Felix Kubler & Raghav Malhotra & Herakles Polemarchakis, 2021. "Exact inference from finite market data," Papers 2107.07294, arXiv.org.
    8. Syngjoo Choi & Raymond Fisman & Douglas Gale & Shachar Kariv, 2007. "Consistency and Heterogeneity of Individual Behavior under Uncertainty," American Economic Review, American Economic Association, vol. 97(5), pages 1921-1938, December.
    9. Ken-ichi Inada, 1963. "On a Two-Sector Model of Economic Growth: Comments and a Generalization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 30(2), pages 119-127.
    10. Chen, Jie & Su, Xunhua & Tian, Xuan & Xu, Bin, 2022. "Does customer-base structure influence managerial risk-taking incentives?," Journal of Financial Economics, Elsevier, vol. 143(1), pages 462-483.
    11. Heufer, Jan, 2014. "Nonparametric comparative revealed risk aversion," Journal of Economic Theory, Elsevier, vol. 153(C), pages 569-616.
    12. Galanis, Spyros, 2018. "Financial complexity and trade," Games and Economic Behavior, Elsevier, vol. 112(C), pages 219-230.
    13. Green, Richard C. & Srivastava, Sanjay, 1986. "Expected utility maximization and demand behavior," Journal of Economic Theory, Elsevier, vol. 38(2), pages 313-323, April.
    14. Charalambos D. Aliprantis & Kim C. Border, 2006. "Infinite Dimensional Analysis," Springer Books, Springer, edition 0, number 978-3-540-29587-7, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cappelen, Alexander W. & Kariv, Shachar & Sørensen, Erik Ø. & Tungodden, Bertil, 2023. "The development gap in economic rationality of future elites," Games and Economic Behavior, Elsevier, vol. 142(C), pages 866-878.
    2. Dziewulski, Paweł & Lanier, Joshua & Quah, John K.-H., 2024. "Revealed preference and revealed preference cycles: A survey," Journal of Mathematical Economics, Elsevier, vol. 113(C).
    3. Pawe{l} Dziewulski & Joshua Lanier & John K. -H. Quah, 2024. "Revealed preference and revealed preference cycles: a survey," Papers 2405.08459, arXiv.org.
    4. Federico Echenique, 2020. "New Developments in Revealed Preference Theory: Decisions Under Risk, Uncertainty, and Intertemporal Choice," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 299-316, August.
    5. Hiroki Nishimura & Efe A. Ok & John K.-H. Quah, 2017. "A Comprehensive Approach to Revealed Preference Theory," American Economic Review, American Economic Association, vol. 107(4), pages 1239-1263, April.
    6. Pawel Dziewulski, 2021. "A comprehensive revealed preference approach to approximate utility maximisation," Working Paper Series 0621, Department of Economics, University of Sussex Business School.
    7. Joshua Lanier & Bin Miao & John K.-H. Quah & Songfa Zhong, 2024. "Intertemporal Consumption with Risk: A Revealed Preference Analysis," The Review of Economics and Statistics, MIT Press, vol. 106(5), pages 1319-1333, September.
    8. Thomas Demuynck & John Rehbeck, 2023. "Computing revealed preference goodness-of-fit measures with integer programming," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(4), pages 1175-1195, November.
    9. Michele Garagnani, 2023. "The predictive power of risk elicitation tasks," Journal of Risk and Uncertainty, Springer, vol. 67(2), pages 165-192, October.
    10. Heufer, Jan & Hjertstrand, Per, 2019. "Homothetic preferences revealed," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 602-614.
    11. Zachary Breig & Paul Feldman, 2024. "Revealing risky mistakes through revisions," Journal of Risk and Uncertainty, Springer, vol. 68(3), pages 227-254, June.
    12. Thomas Demuynck & Clément Staner, 2020. "An Efficient Revealed Preference Test for the Maxmin Expected Utility Model," Working Papers ECARES 2020-31, ULB -- Universite Libre de Bruxelles.
    13. Aluma Dembo & Shachar Kariv & Matthew Polisson & John Quah, 2021. "Ever since Allais," IFS Working Papers W21/15, Institute for Fiscal Studies.
    14. Federico Echenique & Taisuke Imai & Kota Saito, 2023. "Approximate Expected Utility Rationalization," Journal of the European Economic Association, European Economic Association, vol. 21(5), pages 1821-1864.
    15. Heufer, Jan & Hjertstrand, Per, 2015. "Consistent subsets: Computationally feasible methods to compute the Houtman–Maks-index," Economics Letters, Elsevier, vol. 128(C), pages 87-89.
    16. Zachary Breig, 2020. "Prediction and Model Selection in Experiments," The Economic Record, The Economic Society of Australia, vol. 96(313), pages 153-176, June.
    17. Christopher P. Chambers & Federico Echenique & Nicolas S. Lambert, 2021. "Recovering Preferences From Finite Data," Econometrica, Econometric Society, vol. 89(4), pages 1633-1664, July.
    18. Jan Heufer, 2014. "Generating Random Optimising Choices," Computational Economics, Springer;Society for Computational Economics, vol. 44(3), pages 295-305, October.
    19. Marco Castillo & David L. Dickinson & Ragan Petrie, 2017. "Sleepiness, choice consistency, and risk preferences," Theory and Decision, Springer, vol. 82(1), pages 41-73, January.
    20. Heufer, Jan, 2014. "Nonparametric comparative revealed risk aversion," Journal of Economic Theory, Elsevier, vol. 153(C), pages 569-616.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2304.08059. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.