Bubbles and Bluffs: Risk Lovers Can Survive Economically

Taiji Harashima

MPRA Paper from University Library of Munich, Germany

Abstract: In economics, risk lovers have been generally ignored, most likely because it has generally been thought that they cannot survive economically. In this paper, I examine the possibility that risk lovers can exist continuously in the framework of an economic growth model. A bubble-like phenomenon (a so-called “bubble economy”) can be generated if risk lovers undertake a very risky financial “bluff”—for example, if they purposely raise some important asset prices. I conclude that because risk-loving and risk-averse households can coexist at a state of sustainable heterogeneity, risk lovers can exist continuously in an economy. Therefore, it is likely that a bluff will be undertaken by risk lovers and a bubble-like phenomenon can be generated.

Keywords: Risk lover; Bluff; Bubble; Sustainable heterogeneity; Risk averse (search for similar items in EconPapers)
JEL-codes: D81 E32 E44 G11 (search for similar items in EconPapers)
Date: 2018-01-05
New Economics Papers: this item is included in nep-mac, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:83615

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