Acceptable Risk in a Two-Asset Game

Abstract

A social network model has been used to simulate how agents of different levels of risk aversion and the level of suspiciousness behave on a two-asset market when deciding between risk-free and a risky asset. The developments of the games are path-dependent. A significant feature of the paper is that mean returns of assets are a key determinant of the decision-making, while the variance as such is not. It has been demonstrated that the level of suspiciousness has a significant effect on the decision-making. Under most of the circumstances, pure risk-loving turns out to dominate over risk-aversion.