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On the Independence of Irrelevant Assets: McEntire's Conjecture

Author

Listed:
  • Raj Deb

    (Department of Economics, Southern Methodist University, Dallas, TX 75275)

  • Josef Hadar

    (Department of Economics, Southern Methodist University, Dallas, TX 75275)

  • Tae Kun Seo

    (Department of Economics, Southern Methodist University, Dallas, TX 75275)

Abstract

In his 1984 paper in Management Science, McEntire conjectured that all concave utility functions satisfy his independence-from-irrelevant-assets (IIA) property. This paper shows that this conjecture is false. The paper provides several families of utility functions, all of whose members violate the IIA property; moreover, it is shown that the set of utility functions violating the IIA property is quite large, and that it is widespread throughout the entire space of utility functions.

Suggested Citation

  • Raj Deb & Josef Hadar & Tae Kun Seo, 1991. "On the Independence of Irrelevant Assets: McEntire's Conjecture," Management Science, INFORMS, vol. 37(3), pages 301-306, March.
    • Handle: RePEc:inm:ormnsc:v:37:y:1991:i:3:p:301-306
    DOI: 10.1287/mnsc.37.3.301
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    Keywords

    portfolio selection; irrelevant assets;

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