Acceptable Risk in a Portfolio Analysis
AbstractA social network has been used to simulate how agents of different levels of risk aversion under different circumstances behave in financial markets when deciding between risk-free and a risky asset. This is done by a discrete time version evolutionary game of risk-loving and risk-averse agents. The evolutionary process takes place on a social network through which investors acquire information they need to choose the strategy. A significant feature of the paper is that first-order stochastic dominance is a key determinant of the decision-making, while second-order stochastic dominance is not, with the level of omniscience and preferences of agents also having a significant role. Under most of the circumstances, pure risk-aversion turns out to be dominated strategy, while pure risk-taking “almost” dominant.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13569.
Date of creation: 2009
Date of revision:
social networks; portfolio analysis; stochastic finance; stochastic dominance;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-28 (All new papers)
- NEP-NET-2009-02-28 (Network Economics)
- NEP-UPT-2009-02-28 (Utility Models & Prospect Theory)
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