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When does aggregation reduce risk aversion?

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  • Chambers, Christopher P.
  • Echenique, Federico

Abstract

We study the problem of risk sharing within a household or syndicate. A household shares risky prospects using a social welfare functional. We characterize the social welfare functionals such that the household is collectively less risk averse than each member, and satisfies the Pareto principle and an invariance axiom. We single out the sum of certainty equivalents as the unique member of this family which is quasiconcave over riskless allocations.

Suggested Citation

  • Chambers, Christopher P. & Echenique, Federico, 2012. "When does aggregation reduce risk aversion?," Games and Economic Behavior, Elsevier, vol. 76(2), pages 582-595.
    • Handle: RePEc:eee:gamebe:v:76:y:2012:i:2:p:582-595
    DOI: 10.1016/j.geb.2012.07.015
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    Cited by:

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    3. Thierry Marchant, 2019. "Utilitarianism without individual utilities," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 53(1), pages 1-19, June.
    4. Khan, Urmee & Stinchcombe, Maxwell B., 2018. "Planning for the long run: Programming with patient, Pareto responsive preferences," Journal of Economic Theory, Elsevier, vol. 176(C), pages 444-478.
    5. Fleurbaey, Marc & Zuber, Stéphane, 2017. "Fair management of social risk," Journal of Economic Theory, Elsevier, vol. 169(C), pages 666-706.
    6. Miyagishima, Kaname, 2023. "Time-consistent fair social choice," Theoretical Economics, Econometric Society, vol. 18(3), July.
    7. Thibault Gajdos & Jean-Christophe Vergnaud, 2013. "Decisions with conflicting and imprecise information," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(2), pages 427-452, July.
    8. Lutz G. Arnold & Sebastian Zelzner, 2020. "Welfare Effects of the Allocation of Talent to Financial Trading: What Does the Grossman-Stiglitz Model Say?," Working Papers 190, Bavarian Graduate Program in Economics (BGPE).
    9. Marc Fleurbaey & Stéphane Zuber, 2021. "Universal social welfare orderings and risk," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03289160, HAL.
    10. Kaname Miyagishima, 2022. "Efficiency, equity, and social rationality under uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(1), pages 237-255, February.
    11. Xiangyu Qu, 2017. "Separate aggregation of beliefs and values under ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(2), pages 503-519, February.
    12. Xiao Yu Wang, 2014. "Risk Sorting, Portfolio Choice, and Endogenous Informal Insurance," NBER Working Papers 20429, National Bureau of Economic Research, Inc.
    13. Xiaosheng Mu & Luciano Pomatto & Philipp Strack & Omer Tamuz, 2021. "Monotone Additive Statistics," Working Papers 2021-36, Princeton University. Economics Department..
    14. Aurélien Baillon & Ning Liu & Dennie Dolder, 2017. "Comparing uncertainty aversion towards different sources," Theory and Decision, Springer, vol. 83(1), pages 1-18, June.
    15. Tim Willems, 2013. "Political Accountability and Policy Experimentation: Why to Elect Left-Handed Politicians?," Economics Series Working Papers 647, University of Oxford, Department of Economics.
    16. Miyagishima, Kaname, 2019. "Fair criteria for social decisions under uncertainty," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 77-87.

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    More about this item

    Keywords

    Certainty equivalent; Aggregation; Risk aversion; Sum of individual certainty equivalents;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D6 - Microeconomics - - Welfare Economics
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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