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Evolutionary Foundation for Heterogeneity in Risk Aversion

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  • Yuval Heller
  • Ilan Nehama

Abstract

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.

Suggested Citation

  • Yuval Heller & Ilan Nehama, 2021. "Evolutionary Foundation for Heterogeneity in Risk Aversion," Papers 2110.11245, arXiv.org, revised Jan 2023.
    • Handle: RePEc:arx:papers:2110.11245
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    References listed on IDEAS

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    1. Steiner, Jakub & Netzer, Nick & Robson, Arthur & Kocourek, Pavel, 2021. "Endogenous Risk Attitudes," CEPR Discussion Papers 16190, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Manuel Staab, 2023. "Evolution of Risk-Taking Behaviour and Status Preferences in Anti-coordination Games," Dynamic Games and Applications, Springer, vol. 13(4), pages 1320-1342, December.

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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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