Reciprocity & Risk

who survive through foraging or farming each persons

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Unformatted text preview: "! ) who survive through foraging or farming Each person's food income is likely to fluctuate from day to day or year to year, due to chance events (in weather, animal behavior, injuries that might prevent you from working on some days, etc.), and we might suppose this could be unpleasant (you might go hungry some days) or even disastrous (you might starve, or succumb to disease in your weakened state) But suppose this variation is not synchronized (e.g., each individual forages or farms in different but nearby areas, each has an independent chance of getting injured, etc.) Then they have a way of reducing their risk: they can buffer variation in food income by pooling the harvest and each consuming half This way they can get the benefit of averaging with less of the ups & downs associated with risky outcomes -- V{( + )/2 rather than {V( ) + V( ) /2 Of course this will reduce risk only to the degree that the two parties have failure rates that are "unsynchronized" or out of phase (perfect synchrony means Sally gets exactly what Jane gets; perfect asynchrony means whenever Sally gets , Jane gets , and vice versa; in the real world, we can expect synchrony to be somewhere in between these extremes) But as we increase the size of the sharing network, even partial asynchrony will be very effective at reducing variation in individual income (following the "law of large numbers"), a result that is fundamental to insurance plans In sum, the...
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