On the role of risk preference in survivability

Authors:
Shu-Heng Chen;Ya-Chi Huang
Affiliations:
AI-ECON Research Center, Department of Economics, National Chengchi University, Taipei, Taiwan;AI-ECON Research Center, Department of Economics, National Chengchi University, Taipei, Taiwan
Venue:
ICNC'05 Proceedings of the First international conference on Advances in Natural Computation - Volume Part III
Year:
2005

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Abstract

Using an agent-based multi-asset artificial stock market, we simulate the survival dynamics of investors with different risk preferences. It is found that the survivability of investors is closely related to their risk preferences. Among the eight types of investors considered in this paper, only the CRRA investors with RRA coefficients close to one can survive in the long run. Other types of agents are eventually driven out of the market, including the famous CARA agents and agents who base their decision on the capital asset pricing model.