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Optimal risk sharing, equilibria, and welfare with empirically realistic risk attitudes

Author

Listed:
  • Jean-Gabriel Lauzier
  • Liyuan Lin
  • Peter Wakker
  • Ruodu Wang

Abstract

This paper examines optimal risk sharing for empirically realistic risk attitudes, providing results on Pareto optimality, competitive equilibria, utility frontiers, and the first and second theorems of welfare. Contrary to common theoretical assumptions, empirical studies find prevailing risk seeking in particular subdomains, in particular for losses. We first allow for some risk-seeking agents, still assuming expected utility. Yet more empirical realism is obtained by allowing agents to be neither risk averse nor risk seeking and by generalizing expected utility. Here we provide first results, pleading for future research. Our main new tool is a counter-monotonic improvement theorem.

Suggested Citation

  • Jean-Gabriel Lauzier & Liyuan Lin & Peter Wakker & Ruodu Wang, 2024. "Optimal risk sharing, equilibria, and welfare with empirically realistic risk attitudes," Papers 2401.03328, arXiv.org, revised Oct 2025.
    • Handle: RePEc:arx:papers:2401.03328
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    References listed on IDEAS

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    Cited by:

    1. Mario Ghossoub & Qinghua Ren & Ruodu Wang, 2024. "Counter-monotonic Risk Sharing with Heterogeneous Distortion Risk Measures," Papers 2412.00655, arXiv.org.
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    3. Peng Liu & Tiantian Mao & Ruodu Wang, 2024. "Quantiles under ambiguity and risk sharing," Papers 2412.19546, arXiv.org.

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