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Collective risk aversion

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  • Elyès Jouini

    ()

  • Clotilde Napp
  • Diego Nocetti

    ()

Abstract

In this article we analyze the risk attitude of a group of heterogeneous agents and we develop a theory of comparative collective risk tolerance. In particular, we characterize how shifts in the distribution of individual levels of risk tolerance affect the group’s attitude towards risk. In a model with efficient risk-sharing and two agents an increase in the level of risk tolerance of one or of both agents might have an ambiguous impact on the collective level of risk tolerance; the latter increases for some levels of aggregate wealth while it decreases for other levels of aggregate wealth. For more general populations we characterize the effect of first-order like shifts (individual levels of risk tolerance more concentrated on high values) and second-order like shifts (more dispersion on individual levels of risk tolerance) on the collective level of risk tolerance. We also evaluate how shifts in the distribution of individual levels of risk tolerance impact the collective level of risk tolerance in a framework with exogenous egalitarian sharing rules. Our results permit to better characterize differences in risk taking behavior between groups and individuals and among groups with different distributions of risk preferences. Copyright Springer-Verlag 2013

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Bibliographic Info

Article provided by Springer in its journal Social Choice and Welfare.

Volume (Year): 40 (2013)
Issue (Month): 2 (February)
Pages: 411-437

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Handle: RePEc:spr:sochwe:v:40:y:2013:i:2:p:411-437

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  1. Masclet, David & Colombier, Nathalie & Denant-Boemont, Laurent & Lohéac, Youenn, 2009. "Group and individual risk preferences: A lottery-choice experiment with self-employed and salaried workers," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 470-484, June.
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  3. Gollier, Christian, 2001. "Wealth Inequality and Asset Pricing," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 181-203, January.
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  7. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
  8. Gollier, Christian, 1997. "A Note on Portfolio Dominance," Review of Economic Studies, Wiley Blackwell, vol. 64(1), pages 147-50, January.
  9. Charness, Gary B & Karni, Edi, 2007. "Individual and Group Decision Making Under Risk: An Experimental Study of Bayesian Updating and Violations of First-order Stochastic Dominance," University of California at Santa Barbara, Economics Working Paper Series qt4gr7j8z8, Department of Economics, UC Santa Barbara.
  10. Christian Gollier, 2007. "Whom should we believe? Aggregation of heterogeneous beliefs," Journal of Risk and Uncertainty, Springer, vol. 35(2), pages 107-127, October.
  11. Landsberger, Michael & Meilijson, Isaac, 1990. "Demand for risky financial assets: A portfolio analysis," Journal of Economic Theory, Elsevier, vol. 50(1), pages 204-213, February.
  12. Kfir Eliaz & Debraj Ray & Ronny Razin, 2006. "Choice Shifts in Groups: A Decision-Theoretic Basis," American Economic Review, American Economic Association, vol. 96(4), pages 1321-1332, September.
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