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Risk-Return Analysis, Volume 2: The Theory and Practice of Rational Investing by Harry M. Markowitz

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10

PORTFOLIO SELECTION AS A SOCIAL CHOICE

INTRODUCTION

In Chapter 6 we saw that a portfolio typically has many stakeholders whose needs should be taken into account. This is what Arrow (1951) refers to as a social choice. He shows that there is no voting system for choosing a winner, based on voters’ rankings of candidates, that can be sure to satisfy a list of conditions that Arrow considers self-evidently essential. Goodman and Markowitz (1952) and Hildreth (1953) do not consider all of Arrow’s conditions essential, or even desirable. Instead, they each propose their own list of conditions that can always be satisfied by a suitable voting system. In their authoritative text, Games and Decisions: Introduction and Critical Survey, Luce and ...

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