Title: Enhancing the Cournot model by integrating risk events and attitudes towards risk

Authors: José Diogo; Pedro Godinho; João Paulo Costa

Addresses: Faculty of Economics, CeBER, Univ Coimbra, Av Dias da Silva 165, 3004-512, Coimbra, Portugal ' Faculty of Economics, CeBER, Univ Coimbra, Av Dias da Silva 165, 3004-512, Coimbra, Portugal ' Faculty of Economics, CeBER, Univ Coimbra, Av Dias da Silva 165, 3004-512, Coimbra, Portugal

Abstract: This paper incorporates an operational risk event in the Cournot model. The risk event has impacts on the operational costs, but it is possible to control these costs after the event by implementing actions to mitigate those impacts. Naturally, these actions demand higher operational costs before the event. This study considers a common situation where risk-neutral company owners hire managers to establish both the production levels and the actions to mitigate the impacts of the risk event. While studying different combinations of risk attitude for managers, it is found that the highest expected profit in the equilibrium is reached when the managers present some degree of risk-seeking behaviour.

Keywords: game theory; Cournot model; Nash equilibrium; risk modelling; duopoly; risk attitudes.

DOI: 10.1504/GBER.2025.145280

Global Business and Economics Review, 2025 Vol.32 No.3, pp.328 - 356

Received: 17 Apr 2023
Accepted: 18 Sep 2023
Published online: 31 Mar 2025 *

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