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Gains from diversification: a regret theory approach

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  • Martín Jorge Egozcue

    (Universidad de la República)

Abstract

In this paper we analyze a regret-averse individual best choice in a two risky assets portfolio. We extend previous literature and contribute new results by considering a model with two assets. We get the conditions for the regret-averse investor to diversify the portfolio. We additionally compare the behavior of the regret-averse investor with the behavior of its risk-averse counterpart. We characterize the conditions under which both types of agents behavior coincide.

Suggested Citation

  • Martín Jorge Egozcue, 2012. "Gains from diversification: a regret theory approach," Economics Bulletin, AccessEcon, vol. 32(1), pages 204-219.
    • Handle: RePEc:ebl:ecbull:eb-11-00635
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    optimization; diversification; regret theory; quadrant dependent.;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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