Asset diversification in Yaari's dual theory

This paper presents an application of the dual theory of choice under uncertainty to the problem of asset diversification. It is shown that when there are two or more risky assets, conditions which are sufficient for expected-utility maximizers to diversify among n assets, are also sufficient for dual agents to do so. This result is in contrast to the case of one risky and one safe asset in which dual agents invest all their funds in only one of the assets, while expected-utility maximizers usually diversify.