11
JUDGMENT AND APPROXIMATION
INTRODUCTION
A major conclusion of the preceding chapters is that the game-of-life investment context is well beyond our current and foreseeable optimization capabilities. In practice, therefore, formal analysis must frequently resort to approximation, and call upon judgment. The present chapter further explores the division of labor between analysis and judgment, and the use of approximation in analysis. Topics covered include the Markowitz (1959) proposals in this area, the Markowitz and van Dijk (2003) heuristic for approximating an (unknown) derived utility function, the Blay and Markowitz (2016) procedure for tax-cognizant portfolio allocation (TCPA), and “buckets,” a.k.a. “mental accounts,” as a methodology ...
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