Naive diversification

Naive diversification

Naïve diversification is a choice heuristic (also known as "diversification heuristic"[1]). Its first demonstration was made by Itamar Simonson in marketing in the context of consumption decisions by individuals.[2] It was subsequently shown in the context of economic and financial decisions. Simonson showed that when people have to make simultaneous choice (e.g. choose now which of six snacks to consume in the next three weeks), they tend to seek more variety (e.g., pick more kinds of snacks) than when they make sequential choices (e.g., choose once a week which of six snacks to consume that week for three weeks). That is, when asked to make several choices at once, people tend to diversify more than when making the same type of decision sequentially.

Subsequent research replicated the effect using a field experiment: on Halloween night, young trick-or-treaters were required to make a simultaneous or subsequent choice between the candies they received. The results showed a strong diversification bias when choices had to be made simultaneously, but not when they were made sequentially.[3]

Shlomo Benartzi and Richard Thaler commented on Read and Loewenstein's research: "This result is striking since in either case the candies are dumped into a bag and consumed later. It is the portfolio in the bag that matters, not the portfolio selected at each house."[4] Following on the naive diversification showed by children, Benartzi and Thaler turned to study whether the effect manifests itself among investors making decisions in the context of defined contribution saving plans. They found that "some investors follow the '1/n strategy': they divide their contributions evenly across the funds offered in the plan. Consistent with this Naïve notion of diversification, we find that the proportion invested in stocks depends strongly on the proportion of stock funds in the plan." This finding is particularly troubling in the context of laypersons making financial decisions, because they may be diversifying in a way that is sub-optimal.

References

  1. ^ Read, Daniel, and George Loewenstein. 1995. "Diversification Bias: Explaining the Discrepancy in Variety Seeking between Combined and Separated Choices." Journal of Experimental Psychology: Applied 1:34-49.
  2. ^ Simonson, Itamar. 1990. "The Effect of Purchase Quantity and Timing on Variety-Seeking Behavior." Journal of Marketing Research 27:150-162.
  3. ^ Read, Daniel, and George Loewenstein. 1995. "Diversification Bias: Explaining the Discrepancy in Variety Seeking between Combined and Separated Choices." Journal of Experimental Psychology: Applied 1:34-49
  4. ^ Benartzi, Shlomo, and Richard H. Thaler. 2001. "Naïve Diversification Strategies in Defined Contribution Saving Plans." American Economic Review 91:79-98.

Wikimedia Foundation. 2010.

Игры ⚽ Нужна курсовая?

Look at other dictionaries:

  • Naive diversification — A strategy whereby an investor simply invests in a number of different assets and hopes that the variance of the expected return on the portfolio is lowered. Related: Markowitz diversification. The New York Times Financial Glossary …   Financial and business terms

  • naive diversification — A strategy whereby an investor simply invests in a number of different assets in the hope that the variance of the expected return on the portfolio is lowered. In contrast, mathematical programming can be used to select the best possible… …   Financial and business terms

  • Markowitz diversification — A strategy that seeks to combine assets a portfolio with returns that are less than perfectly positively correlated, in an effort to lower portfolio risk ( variance) without sacrificing return. Related: naive diversification A strategy that seeks …   Financial and business terms

  • Risikodiversifizierung — (auch Risikodiversifikation) ist eine Strategie, mit der ein Kapitalmarktteilnehmer das Risiko einer Teilnahme auf dem Kapitalmarkt durch die Aufteilung seines Vermögens auf verschiedene Vermögenswerte (sog. Assets) reduzieren kann. Die Strategie …   Deutsch Wikipedia

  • Наивная диверсификация — стратегия, предполагающая, что инвестор просто вкладывает средства в ряд различных активов и надеется, что рассеяние ожидаемой доходности портфеля при этом снижается. По английски: Naive diversification См. также: Диверсификация портфеля ценных… …   Финансовый словарь

  • Диверсификация — (новолат. diversificatio  изменение, разнообразие; от лат. diversus  разный и facere  делать)  расширение ассортимента выпускаемой продукции и переориентация рынков сбыта, освоение новых видов производств с целью… …   Википедия

  • MUSIC — This article is arranged according to the following outline: introduction written sources of direct and circumstantial evidence the material relics and iconography notated sources oral tradition archives and important collections of jewish music… …   Encyclopedia of Judaism

  • Crise du disque — La crise du disque est due au développement du support numérique et à la distribution de la musique sous forme de fichiers. La crise est devenue plus importante dans les années 2000. Tout au long de son histoire, l industrie musicale enregistrée… …   Wikipédia en Français

  • PERCEPTION — Malgré l’intérêt incessant qu’a suscité l’étude de la perception tout au long de l’histoire de la philosophie occidentale et malgré l’énorme contribution, sur ce sujet, de la psychologie depuis l’époque où celle ci a tenté de se définir comme… …   Encyclopédie Universelle

  • Australia — /aw strayl yeuh/, n. 1. a continent SE of Asia, between the Indian and the Pacific oceans. 18,438,824; 2,948,366 sq. mi. (7,636,270 sq. km). 2. Commonwealth of, a member of the Commonwealth of Nations, consisting of the federated states and… …   Universalium

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”