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Diversification, Convex Preferences and Non-Empty Core

  • Alain Chateauneuf

    (CERMSEM)

  • Jean-Marc Tallon

    (Universite Paris 1)

We show, in the Choquet expected utility model, that preference for diversification, that is, convex preferences, is equivalent to a concave utility index and a convex capacity. We then introduce a weaker notion of diversification, namely ``sure diversification.'' We show that this implies that the core of the capacity is non-empty. The converse holds under concavity of the utility index. This property is shown to be equivalent to the notion of comonotone diversification\,; notion that we introduce in the paper. Finally, in the expected utility model, all these notions of diversification are equivalent and are represented by the concavity of the utility index.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0751.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0751
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  1. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  2. Chateauneuf, Alain & Dana, Rose-Anne & Tallon, Jean-Marc, 2000. "Optimal risk-sharing rules and equilibria with Choquet-expected-utility," Journal of Mathematical Economics, Elsevier, vol. 34(2), pages 191-214, October.
  3. Wakker, Peter, 1990. "Characterizing optimism and pessimism directly through comonotonicity," Journal of Economic Theory, Elsevier, vol. 52(2), pages 453-463, December.
  4. Larry Epstein, 1997. "Uncertainty Aversion," Working Papers epstein-97-01, University of Toronto, Department of Economics.
  5. Chateauneuf, Alain, 1991. "On the use of capacities in modeling uncertainty aversion and risk aversion," Journal of Mathematical Economics, Elsevier, vol. 20(4), pages 343-369.
  6. Dekel, Eddie, 1989. "Asset Demands without the Independence Axiom," Econometrica, Econometric Society, vol. 57(1), pages 163-69, January.
  7. Gerard Debreu & Tjalling C. Koopmans, 1980. "Additively Decomposed Quasiconvex Functions," Cowles Foundation Discussion Papers 574, Cowles Foundation for Research in Economics, Yale University.
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