The LeChatelier principle for changes in risk

DOI10.1016/J.JMATECO.2013.05.006MaRDI QIDQ393273zbMATH OpenOpenAlexFDO

Authors Diego C. Nocetti

Publication date 16 January 2014

Published in Journal of Mathematical Economics (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/j.jmateco.2013.05.006

zbMATH Keywords

Le Chatelier's principlemultivariate controlrisk changes

Mathematics Subject Classification ID

Decision theory (91B06)

Review text

Le Chatelier's principle states that in systems with positive feedbacks, the unrestricted response of an endogenous variable to a change in an exogenous variable is in the same direction and stronger in magnitude than the restricted response. The author demonstrates that this principle, introduced to economics by Samuelson, extends naturally to the comparative statics of changes in risk: in the presence of positive feedbacks between the decision variables, the unrestricted response to an increase in risk is in the same direction and stronger in magnitude than the restricted response (i.e. other decision variables fixed). The concepts of \(N\)th-degree risk complements and \(N\)th-degree risk substitutes are defined. In the case when two decision variables are either \(N\)th-degree risk complements or \(N\)th-degree risk substitutes, the unrestricted response of both variables to a risk change in the form of an \(N\)th-degree stochastically dominated shift is in the same direction and at least as strong in magnitude as the restricted response.

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Cites work

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Cited in

(8)

• The Le Chatelier-Samuelson principle revisited
• The LeChatelier principle: The long and the short of it
• Rationality and the LeChatelier principle
• Changes in risk and strategic interaction
• The Le Chatelier principle in dynamic models of the firm
• The LeChatelier Principle under Production Uncertainty
• LeChatelier-Samuelson principle in games and pass-through of shocks
• Precautionary risk-reduction and saving decisions: two sides of the same coin?

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