The Willingness to Pay for Diversification

Diversification is a fundamental concept in economics and finance. This paper argues that decision makers have an intrinsic preference for diversification responsive to cost this willingness pay driven by risk aversion loss aversion. In experiment replicating portfolio choice problem, the value of estimated be at 5% initial endowment approximately $100. Moreover, risk-averse loss-averse individuals are willing more diversification. These findings point idea may help explain anomalies such as irrational diversification, bias, overdiversification. was accepted Tomasz Piskorski,