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On the Effect of Risk Aversion in Two-Person, Two-State Finance Economies

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  • Berden Caroline

    ()
    (Maastricht University)

  • Peters Hans

    ()
    (Maastricht University)

Abstract

The effect of replacing an agent in a two-person two-state finance economy by a more risk averse agent is studied. It is established under which conditions the other agent benefits or looses in equilibrium from dealing with a more risk averse agent. If one agent becomes more risk averse, then the equilibrium allocation moves towards that agent's certainty line. Whether or not that is beneficial for the other agent depends on the location of the endowment point.

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File URL: http://www.degruyter.com/view/j/bejte.2007.7.1/bejte.2007.7.1.1394/bejte.2007.7.1.1394.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 7 (2008)
Issue (Month): 1 (January)
Pages: 1-18

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Handle: RePEc:bpj:bejtec:v:7:y:2008:i:1:n:47

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  1. Peters,Hans & Köbberling,Vera, 2000. "The Effect of Decision Weights in Bargaining Problems," Research Memorandum 037, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Caroline Berden & Hans Peters, 2006. "On the Effect of Risk Aversion in Bimatrix Games," Theory and Decision, Springer, vol. 60(4), pages 359-370, 06.
  3. LeRoy,Stephen F. & Werner,Jan, 2001. "Principles of Financial Economics," Cambridge Books, Cambridge University Press, number 9780521586054, October.
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