Evolution and Preference for Local Risk

Yuval Heller and Arthur Robson

MPRA Paper from University Library of Munich, Germany

Abstract: Our understanding of risk preferences can be sharpened by considering their evolutionary basis. Recently, Robatto and Szentes (2017) found that both aggregate risk and idiosyncratic risk generate the same growth rate in a continuous time setting. We introduce a new source of risk, which is correlated between agents in the same location, but is uncorrelated between agents in different locations. We show that this local risk induces a strictly higher growth rate. This shows that interdependence of risk and population structure have important implications in a continuous-time setting, and that natural selection induces individuals to prefer local risk.

Keywords: Risk preferences; evolution; risk interdependence; long-run growth rate. (search for similar items in EconPapers)
JEL-codes: D81 D91 (search for similar items in EconPapers)
Date: 2019-07-21
New Economics Papers: this item is included in nep-evo and nep-gro
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https://mpra.ub.uni-muenchen.de/95264/1/MPRA_paper_95264.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/101155/1/MPRA_paper_101155.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/102280/1/MPRA_paper_102280.pdf revised version (application/pdf)

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