Uncertainty Aversion and Convexity in Portfolio Choice

Dong, Xueqi (2021): Uncertainty Aversion and Convexity in Portfolio Choice.

Abstract

This note studies the implication of the general notion of uncertainty aversion (Schmeidler 1989) on the problem of portfolio choice, which involves allocating the proportions of fixed capital to several assets. We prove that if an investor is both risk averse and uncertainty averse, then preference in a portfolio space is convex. This result means that the convexity in a portfolio choice problem can be guaranteed without restricting preference representation to a particular functional form.

• Item Type: MPRA Paper
• Language: English
• Keywords: Convexity, Portfolio Choice, Ambiguity, Uncertainty Aversion, Risk Aversion
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty

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