Skip to main content

Solutions to the Asset Allocation Problem by Informed Respondents: The Significance of the Size-of-Bet and the 1/N Heuristic

Buy Article:

$43.00 plus tax (Refund Policy)


Asset allocation is a classic topic in the theory of finance and a crucial issue for investment policy. Noted for its significance in driving pension fund performance, it is also an issue that individual investors consider when designing their investment portfolios. In theory, Markowitz and those following in his wake have an optimal solution. In practice, however, we show that when asked to allocate their own money to a set of asset classes (from relatively low risk to high risk) in an experimental situation, most of our informed respondents would vary their investment strategies according to the size-of-bet (the money value of assets to be invested). We also show that most participants in the study adopted one of three solutions to the posed problem only one of which could be thought consistent with Benartzi and Thaler's 1/n heuristic. Since respondent solutions do not seem to be explained by formal education, professional qualifications, or training, it is suggested that solutions to the asset allocation problem are a product of strategies that mix intuitive responses to the initial tranche of money with theoretical cum practical shared conventions. Solutions to the asset allocation puzzle suggest that the size-of-bet could be a significant consideration for many informed investors. In conclusion, suggestions are made about taking forward closer scrutiny of these experimental results.
No References
No Citations
No Supplementary Data
No Article Media
No Metrics

Document Type: Research Article

Publication date: 2009-09-01

  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more