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Risk and evolution

  • Ted To

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

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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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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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  1. 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.
  2. Ed Hopkins, 1995. "Learning, Matching and Aggregation," Game Theory and Information 9512001, EconWPA.
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