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Risk and evolution

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  • Ted To

    (Department of Economics, University of Warwick, Warwick, Coventry CV4 7AL, UK)

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Abstract

I examine a Knightian (1921) model of risk using a general equilibrium model of investment and trade. A population of agents with various preference types can choose between a safe production technology and a risky production technology. In addition, the distribution of types of agents changes through a standard evolutionary dynamic. For a given population distribution, the equilibrium is in general inefficient, however, by allowing the population distribution to change in response to market generated rewards, the population will converge to one where the equilibrium is efficient and where the population as a whole behaves as if all agents were risk neutral.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 13 (1999)
Issue (Month): 2 ()
Pages: 329-343

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Handle: RePEc:spr:joecth:v:13:y:1999:i:2:p:329-343

Note: Received: November 7, 1996; revised version: October 20, 1997
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Related research

Keywords: Risk · Evolution · Entrepreneur.;

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References

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  1. Ed Hopkins, . "Learning, Matching and Aggregation," Discussion Papers 1996-2, Edinburgh School of Economics, University of Edinburgh.
  2. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
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Citations

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Cited by:
  1. Wärneryd, Karl, 2001. "Rent, risk, and replication: preference adaptation in winner-take-all markets," Discussion Papers, Research Unit: Market Processes and Governance FS IV 01-10, Social Science Research Center Berlin (WZB).
  2. Steffen Huck & Georg Kirchsteiger & Joerg Oechssler, 1997. "Learning to Like What You Have - Explaining the Endowment Effect," Game Theory and Information 9702001, EconWPA, revised 15 May 1997.
  3. Timothy C. Haab & John C. Whitehead & George R. Parsons & Jammie Price, 2008. "Effects of Information about Invasive Species on Risk Perception and Seafood Demand by Gender and Race," Working Papers 08-02, Department of Economics, Appalachian State University.
  4. Hammer, Raphaël P. & Burton-Jeangros, Claudine, 2013. "Tensions around risks in pregnancy: A typology of women's experiences of surveillance medicine," Social Science & Medicine, Elsevier, vol. 93(C), pages 55-63.
  5. Dirk Engelmann, 2003. "Risk Aversion Pays in the Class of 2 x 2 Games with No Pure Equilibrium," CERGE-EI Working Papers wp211, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  6. Burkhard C. Schipper, 2005. "The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance," Bonn Econ Discussion Papers bgse35_2005, University of Bonn, Germany.
  7. Curry, Philip A., 2001. "Decision Making under Uncertainty and the Evolution of Interdependent Preferences," Journal of Economic Theory, Elsevier, vol. 98(2), pages 357-369, June.
  8. Carlos Oyarzun & Johannes Ruf, 2009. "Monotone imitation," Economic Theory, Springer, vol. 41(3), pages 411-441, December.
  9. Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers 052, Institute for Empirical Research in Economics - University of Zurich.

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