Risk aversion in economic transactions

Abstract

Most people are risk-averse (risk-seeking) when they expect to gain (lose). Based on a generalization of ``expected utility theory'' which takes this into account, we introduce an automaton mimicking the dynamics of economic operations. Each operator is characterized by a parameter q which gauges people's attitude under risky choices; this index q is in fact the entropic one which plays a central role in nonextensive statistical mechanics. Different long term patterns of average asset redistribution are observed according to the distribution of parameter q (chosen once for ever for each operator) and the rules (e.g., the probabilities involved in the gamble and the indebtedness restrictions) governing the values that are exchanged in the transactions. Analytical and numerical results are discussed in terms of how the sensitivity to risk affects the dynamics of economic transactions.

4 PS figures, to appear in Europhys. Lett

References in corpus (1)

• The leverage effect in financial markets: retarded volatility and market panic

Cited by in corpus (18)

• Nonextensive statistical mechanics and economics
• On the Cut-Off Prescriptions Associated with Power-Law Generalized Thermostatistics
• Continuous growth models in terms of generalized logarithm and exponential functions
• Nonextensive statistical mechanics: Some links with astronomical phenomena
• Generalized exponential function and discrete growth models
• Nonlinear statistical coupling
• An interacting-agent model of financial markets from the viewpoint of nonextensive statistical mechanics
• Generalized Metropolis dynamics with a generalized master equation: An approach for time-independent and time-dependent Monte Carlo simulations of generalized spin systems
• On the average uncertainty for systems with nonlinear coupling
• The geometrical pattern of the evolution of cooperation in the Spatial Prisoner's Dilemma: an intra-group model
• The additive property of the inconsistency degree in intertemporal decision making through the generalization of psychophysical laws
• Rich or poor: Who should pay higher tax rates?
• Nonextensive thermodynamic relations based on the assumption of temperature duality
• A risk profile for information fusion algorithms
• Thermodynamic stability criterion and fluctuation theory in nonextensive thermodynamics
• Pavlovian Prisoner's Dilemma in one-dimensional cellular automata: analytical results, the quasi-regular phase, spatio-temporal patterns and parameter space exploration
• A neuroeconomic theory of rational addiction and nonlinear time-perception
• Biophysics of risk aversion based on neurotransmitter receptor theory