Bruno de Finetti and the case of the critical line’s last segment

Abstract

The anticipatory views of Bruno de Finetti on portfolio theory, set out by the author in a 1940 article, have recently been discovered by Mark Rubinstein and reviewed by Harry Markowitz. This paper analyzes the crucial parts of de Finetti's paper and discusses the controversial issue of the critical line's last segment, i.e. the segment that leads to the minimum-variance efficient portfolio. Markowitz [Markowitz, Harry M., 2006. De Finetti scoops Markowitz. In: A Literature postscript. J. Invest. Manag. 4 (3), 3-18 (special issue)] derives the criterion for the last segment to lie on one of the boundaries of the set of legitimate portfolios in two (and n) dimensions and Pressacco [Pressacco, Flavio, 2005. De Finetti, Markowitz e la congettura dell'ultimo segmento. Rendiconti per gli Studi Economici Quantitativi, Università Cà Foscari di Venezia] shows a necessary and sufficient condition for the last segment to lie inside the legitimate set in three dimensions when the correlations are uniformly positive. This paper revises the terms of the problem and completes the analysis.

Mean–Variance and Expected Utility: The Borch Paradox

“…Completing the circle, Markowitz (2006) and Rubinstein (2006a) have lately pointed to an early paper in Italian, authored by de Finetti (1940), the most revered of all subjective probability theorists, as having been first to express a formal model of decision-making within a MV framework. Two further expositions concentrated on de Finetti's previously little-known anticipation of Markowitz are Barone (2008) and Pressacco and Serafini (2007).…”

The CAPM Debate and the Logic and Philosophy of Finance

“…Markowitz () has in recent times proclaimed that it was in fact de Finetti () who first invented mean‐variance, which if so (cf. Rubinstein, ; Pressacco and Serafini, ; Barone, ) is more than a little ironic, since de Finetti is the most revered of all subjectivist Bayesian probability theorists, and is therefore a patron saint of the SEU school of decision theorists (many of whom still either reject or ignore MV).…”