Risk Aversion Pays in the Class of 2 X 2 Games with No Pure Equilibrium

CERGE-EI Working Paper No. 211

Posted: 24 Apr 2005

See all articles by Dirk Engelmann

Dirk Engelmann

University of London - Royal Holloway - Department of Economics

Date Written: June 2003

Abstract

Simulations indicated that, in the class of 2 x 2 games which only have a mixed equilibrium, payoffs are increased by risk aversion compared to risk neutrality. In this paper I show that the total expected payoff to a player over this class in equilibrium is indeed higher if this player is risk averse than if he is risk neutral provided that all games are played with the same probability. Furthermore, I show that for two subclasses of games more risk aversion is always better, while for a third subclass an intermediate level of risk aversion is preferable.

Keywords: Risk aversion, mixed strategy equilibria

JEL Classification: C72, D89

Suggested Citation

Engelmann, Dirk, Risk Aversion Pays in the Class of 2 X 2 Games with No Pure Equilibrium (June 2003). CERGE-EI Working Paper No. 211, Available at SSRN: https://ssrn.com/abstract=675780

Dirk Engelmann (Contact Author)

University of London - Royal Holloway - Department of Economics ( email )

Egham, TW20 0EX
United Kingdom

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