Choosing portfolios of rival risky options: evidence that most people violate the no safety schools theorem

Abstract Many important decisions, for example, applying to college, require an individual to simultaneously submit several applications. These decisions are unique as each application is risky because acceptance is uncertain while also being rival as one can only attend a single college. In an influential theoretical analysis of these problems, Chade and Smith (2006) establish the No Safety Schools Theorem which suggests larger portfolios are riskier than single choices. We offer experimental evidence, using several experiments, that this theorem is routinely violated. In fact, the majority of our subjects violate this theorem. However, performance improves with practice, advice, and feedback.