Chapter 15-Risk Aversion The principle and agent can have different degree of risk aversion Definitions Two consumers i andj. Consumer i is more risk averse than consumer j, when consumer j prefers a fixed sum of money over a lottery, then consumer I also prefers the fixed amount °n0-{zm8rPo-{m probability 0.7 R(o)=R°().(1511 Waiter is more risk averse than the owner as he is more sceptical about realization of high state Payoff functions PC:0n+034-20.mwm12-03y2.(5y C:0+032-2041+02-0.mu=203+.(513© Wen Cao 6 The principle and agent can have different degree of risk aversion • Definitions • Two consumers i and j. Consumer i is more risk averse than consumer j, when consumer j prefers a fixed sum of money over a lottery, then consumer I also prefers the fixed amount. • • • Waiter is more risk averse than the owner, as he is more sceptical about realization of high state. • Payoff functions: PC: IC: Chapter 15 – Risk Aversion