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Dagon comments on Open Thread August 31 - September 6 - Less Wrong Discussion
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Is there absolute utilitty maximisation in portfolio diversification or is that just a risk control mechanism? Could I pick one random stock and put a whole lot of money in it? I suspect I may be commiting the law of large numbers here (or the gambler's fallacy).
Look at Kelly Betting for some information on why "risk control" is utility maximization.
Presuming you have declining marginal utility for money, picking one random stock gives you the same average/expected monetary outcome, but far lower utility.