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Risk and evolution

Author

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  • Ted To

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

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.

Suggested Citation

  • Ted To, 1999. "Risk and evolution," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(2), pages 329-343.
    • 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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    References listed on IDEAS

    as
    1. Hopkins, Ed, 1999. "Learning, Matching, and Aggregation," Games and Economic Behavior, Elsevier, vol. 26(1), pages 79-110, January.
    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 361-366, May.
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    More about this item

    Keywords

    Risk · Evolution · Entrepreneur.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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