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Are More Risk-Averse Agents More Optimistic? Insights from a Simple Rational Expectations Equilibrium Model

Author

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  • Elyès Jouini

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Clotilde Napp

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We analyze the link between pessimism and risk-aversion. We consider a model of partially revealing, competitive rational expectations equilibrium with diverse information, in which the distribution of risk-aversion across individuals is unknown. We show that when a high individual level of risk-aversion is taken as a signal for a high average level of risk-aversion, more risk-averse agents are more optimistic. This correlation between individual risk-aversion and optimism leads to a pessimistic consensus belief hence to an increase in the market price of risk. Risk-sharing schemes and welfare implications are analyzed. We show that agents' welfare may increase upon the receipt of more precise information.

Suggested Citation

  • Elyès Jouini & Clotilde Napp, 2008. "Are More Risk-Averse Agents More Optimistic? Insights from a Simple Rational Expectations Equilibrium Model," Post-Print halshs-00176630, HAL.
    • Handle: RePEc:hal:journl:halshs-00176630
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00176630v2
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    References listed on IDEAS

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