Why we tend to prefer spreading limited resources evenly across options.

 

Naive Allocation

, explained.

What is Naive Allocation?

Naive allocation, also often referred to as diversification bias or naive diversification, explains the tendency to prefer allocating one’s resources evenly across all options, regardless of whether or not each of the options can or should be viewed as equal.

How does it happen?

When investing, this means diversifying one’s money into different assets based on instinct rather than based on mathematical models or justifications. Behavioural economists see potential to use this tendency to encourage better choices.

Example

For example, dividing healthy food options into various categories (“fruits” and “vegetables”) and grouping unhealthy options together (“cookies and candies”) would be expected to lead to healthier eating choices among consumers, as they would tend to arbitrarily choose evenly between each category.