On the Independence of Irrelevant Assets: McEntire's Conjecture

Management Science · 1991 · Volume 37 · Issue 3

Abstract

In his 1984 paper in Management Science , McEntire conjectured that all concave utility functions satisfy his independence-from-irrelevant-assets (IIA) property. This paper shows that this conjecture is false. The paper provides several families of utility functions, all of whose members violate the IIA property; moreover, it is shown that the set of utility functions violating the IIA property is quite large, and that it is widespread throughout the entire space of utility functions.

Keywords

portfolio selection, irrelevant assets

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