TY - JOUR
T1 - Evolutionary foundation for heterogeneity in risk aversion
AU - Heller, Yuval
AU - Nehama, Ilan
N1 - Publisher Copyright:
© 2023 Elsevier Inc.
PY - 2023/3
Y1 - 2023/3
N2 - We examine the evolutionary basis for risk aversion with respect to aggregate risk. We study populations in which agents face choices between alternatives with different levels of aggregate risk. We show that the choices that maximize the long-run growth rate are induced by a heterogeneous population in which the least and most risk-averse agents are indifferent between facing an aggregate risk and obtaining its linear and harmonic mean for sure, respectively. Moreover, approximately optimal behavior can be induced by a simple distribution according to which all agents have constant relative risk aversion, and the coefficient of relative risk aversion is uniformly distributed between zero and two.
AB - We examine the evolutionary basis for risk aversion with respect to aggregate risk. We study populations in which agents face choices between alternatives with different levels of aggregate risk. We show that the choices that maximize the long-run growth rate are induced by a heterogeneous population in which the least and most risk-averse agents are indifferent between facing an aggregate risk and obtaining its linear and harmonic mean for sure, respectively. Moreover, approximately optimal behavior can be induced by a simple distribution according to which all agents have constant relative risk aversion, and the coefficient of relative risk aversion is uniformly distributed between zero and two.
KW - Evolution of preferences
KW - Long-run growth rate
KW - Risk interdependence
UR - http://www.scopus.com/inward/record.url?scp=85147569152&partnerID=8YFLogxK
U2 - 10.1016/j.jet.2023.105617
DO - 10.1016/j.jet.2023.105617
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AN - SCOPUS:85147569152
SN - 0022-0531
VL - 208
JO - Journal of Economic Theory
JF - Journal of Economic Theory
M1 - 105617
ER -