NDLI: How Elementary is Diversification? A Study of Children's Portfolio Choice

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How Elementary is Diversification? A Study of Children's Portfolio Choice

Content Provider	Scilit
Author	Giorgi, Enrico G. De Mahmoud, Ola
Copyright Year	2017
Description	Journal: SSRN Electronic Journal 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 results of an experiment that tests whether children diversify in a sequence of hypothetical choice questions and dice-rolling games. Overall, we find that children do exhibit preferences for diversification, both for the sake of variety across consumption goods and for the purpose of mitigating risk when faced with a choice across risky gambles. The naive diversification heuristic, which implies an equal allocation across alternatives, is particularly evident in children's choices when the alternatives are equivalent or unknown. We also investigate the relationship between risk aversion and diversification and find no significant connection between the two. Our results indicate that diversification preferences may have fundamental, developmental roots, which contrasts with the traditional normative view of diversification, in which most economic models take diversification preferences as exogenously given. This may have implications for how one can treat investment anomalies in practice and, in particular, promotes financial literacy training from a young age.
Related Links	https://www.zora.uzh.ch/id/eprint/168686/1/SSRN-id3018421.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3018421
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3018421
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2017-08-14
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal History and Philosophy of Science Diversification Preferences Studying Whether Children
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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