On the Effect of Risk Aversion in Two-Person, Two-State Finance Economies

Berden Caroline and Hans Peters
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Berden Caroline: Maastricht University, c.berden@ke.unimaas.nl

The B.E. Journal of Theoretical Economics, 2008, vol. 7, issue 1, 18

Abstract: The effect of replacing an agent in a two-person two-state finance economy by a more risk averse agent is studied. It is established under which conditions the other agent benefits or looses in equilibrium from dealing with a more risk averse agent. If one agent becomes more risk averse, then the equilibrium allocation moves towards that agent's certainty line. Whether or not that is beneficial for the other agent depends on the location of the endowment point.

Keywords: two-person two-state finance economies; risk aversion (search for similar items in EconPapers)
Date: 2008
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Working Paper: On the effect of risk aversion in two-person, two-state finance economies (2006)
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DOI: 10.2202/1935-1704.1394

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