The Willingness to Pay for Diversification

• 成果类型: Article
• 署名作者: Mahmouda, Ola
• 署名单位: University of St Gallen; University of California System; University of California Berkeley
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4122
• 发表日期: 2022
• 页码: 6235-6249
• 关键词: Diversification; portfolio choice; diversification cost; irrational diversification; diversification bias; risk aversion; loss aversion

摘要

Diversification is a fundamental concept in economics and finance. This paper argues that decision makers have an intrinsic preference for diversification that is responsive to cost and that this willingness to pay for diversification is driven by risk aversion and loss aversion. In an experiment replicating a portfolio choice problem, the value of diversification is estimated to be at 5% of the initial endowment of approximately $100. Moreover, risk-averse and loss-averse individuals are willing to pay more for diversification. These findings point to the idea that diversification is a fundamental preference and may help explain portfolio choice anomalies such as irrational diversification, the diversification bias, and overdiversification.