Relative risk aversion and wealth dynamics

As a follow-up to the work of [4] and [5], this paper continues to explore the relationship between wealth share dynamics and risk preferences in the context of an agent-based multi-asset artificial stock market. We simulate a multi-asset agent-based artificial stock market composed of heterogeneous agents with different degrees of relative risk aversion. As before, we find that the difference in risk aversion and the resultant saving behavior are the primary forces in determining the survivability of agents. In addition to the stability of the saving behavior, the level of the saving rate also plays a crucial role. The agents with stable saving behavior, e.g., the log-utility agents, may still become extinct because of their low saving rates, whereas the agents with unstable saving behavior may survive because of their high saving rates, implied by their highly risk-averse preferences. Key words: Risk Preferences, CRRA (Constant Relative Risk Aversion), Blume-Easley Theorem, Agent...

• Type: Journal
• Year: 2007
• Where: ISCI
• Authors: Shu-Heng Chen, Ya-Chi Huang
• Keywords: Artificial Stock Markets, ISCI 2007, Relative Risk Aversion, Risk Aversion