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

Elyès Jouini (1) , Clotilde Napp (2)

1 CEREMADE - CEntre de REcherches en MAthématiques de la DEcision
2 DRM - Dauphine Recherches en Management

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.

Mots clés: Optimism; risk-aversion; rational expectations; risk-premium; heterogenous beliefs

Domaines: Economies et finances

Elyès Jouini, Clotilde Napp. Are More Risk-Averse Agents More Optimistic? Insights from a Simple Rational Expectations Equilibrium Model. 2007. ⟨halshs-00176630v1⟩