This paper describes an empirical study of shortfall optimization with Barra Extreme Risk. We compare minimum shortfall to minimum variance portfolios in the US, UK, and Japanese equity markets using Barra Style Factors (Value, Growth, Momentum, etc.). We show that minimizing shortfall generally...

Diversification is a fundamental concept in economics, decision theory, and finance, but the way in which it is implemented in the real world varies greatly. This paper asks how elementary the notion of diversification is by studying whether children apply it as a choice heuristic. We report on...

Diversification is a fundamental concept in economics, decision theory and finance. It also lies at the core of the Darwinian evolution argument, and diversifying behavior known as bet-hedging has been widely documented in other species. The central premise of this paper is that attitudes...

Abstract. This paper introduces a new model for decision making under ambiguity in the context of asset allocation called second-order uncertainty. I propose a quantification of uncertainty without ranking or evaluation of possible outcomes. Faced with a collection of choice alternatives, the...

A widely applied diversification paradigm is the naive diversification choice heuristic. It stipulates that an economic agent allocates equal decision weights to given choice alternatives independent of their individual characteristics. This article provides mathematically and economically sound...