No. 2017-09 - Wright meets Markowitz: How standard portfolio theory changes when assets are technologies following experience curves

Date: 26 August 2018

We consider how to optimally allocate investments in a portfolio of compet- ing technologies using the standard mean-variance framework of portfolio theory. We assume that technologies follow the empirically observed relationship known as Wright's law, also called a learning curve or experience curve , which postulates that costs drop as cumulative production increases. This introduces a positive feed- back between cost and investment that complicates the portfolio problem, leading to multiple local optima, and causing a trade-o between concentrating investments in one project to spur rapid progress vs. diversifying over many projects to hedge against failure. We study the two-technology case and ...

J. Doyne Farmer Fabrizio Lillo Fran├žois Lafond Rupert Way Valentyn Panchenko

Complexity Economics

No. 2017-09 - Wright meets Markowitz: How standard portfolio theory changes when assets are technologies following experience curves


Type: inet-working-paper

Way, R., Lafond, F., Lillo, F., Panchenko, V. & Farmer, J.D. (2018). 'Wright meets Markowitz: How standard portfolio theory changes when assets are technologies following experience curves'. INET Oxford Working Paper No. 2017-09.


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