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

C. Berden, H.J.M. Peters

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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.
Original languageEnglish
Number of pages47
JournalThe Berkeley Electronic Journal of Theoretical Economics
Issue number1
Publication statusPublished - 1 Jan 2007

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