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Are More Risk-Averse Agents More Optimistic? Insights from a Simple Rational Expectations Equilibrium Model

  • Elyès Jouini

    ()

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS - Université Paris IX - Paris Dauphine)

  • Clotilde Napp

    (DRM - Dauphine Recherches en Management - CNRS - Université Paris IX - Paris Dauphine)

We analyze the link between pessimism and risk-aversion. We consider a model of partially revealing, competitive rational expectations equilibrium with diverse information, in which the distribution of risk-aversion across individuals is unknown. We show that when a high individual level of risk-aversion is taken as a signal for a high average level of risk-aversion, more risk-averse agents are more optimistic. This correlation between individual risk-aversion and optimism leads to a pessimistic consensus belief hence to an increase in the market price of risk. Risk-sharing schemes and welfare implications are analyzed. We show that agents' welfare may increase upon the receipt of more precise information.

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Paper provided by HAL in its series Post-Print with number halshs-00176630.

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Date of creation: Oct 2008
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Publication status: Published in Economics Letters, Elsevier, 2008, 101, pp.73-76
Handle: RePEc:hal:journl:halshs-00176630
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00176630v2
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