In this paper, we look inside the Holy Grail of diversification and see how it works in a world where financial markets are as complex as they are fast-paced.
Most of the time, we decide facing a certain degree of uncertainty. This is often due to the fact that not only we have several options but we also are unable to correctly predict how they are going to affect our situation.
In these cases, we tend to act according to a subconscious evaluation of the probabilities associated with each scenario. Yet, we do not seem surprised to turn to diversification the moment we desire to smooth out such uncertainty. Indeed, it does not only make sense practically but seems to point directly to what a sound decision-making strategy should look like in the real world.
Diversification, on its side, appears to be an ancient – yet incredibly modern – idea. Indeed, it has not only influenced modern sociology, evolutionary theory, and genetics but has also served to shed light on a non-trivial aspect of human behavior: the preference of variety over uniformity when the outcomes are uncertain.
