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Approximation bias in estimating risk aversion

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  • Joseph G. Eisenhauer

    (Canisius College)

Abstract

The asymmetric approximation originally employed by Pratt (1964) to construct reduced-form measures of risk aversion s a downward bias when used for empirical estimation. Calculations based on recent survey data indicate that estimates from a symmetric approximation are generally three times larger than their asymmetric counterparts, a finding that may help to explain the equity premium puzzle.

Suggested Citation

  • Joseph G. Eisenhauer, 2003. "Approximation bias in estimating risk aversion," Economics Bulletin, AccessEcon, vol. 4(38), pages 1-10.
    • Handle: RePEc:ebl:ecbull:eb-03d80014
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    References listed on IDEAS

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    Cited by:

    1. Eisenhauer, Joseph G., 2006. "Risk aversion and prudence in the large," Research in Economics, Elsevier, vol. 60(4), pages 179-187, December.
    2. Peter J. Barry & Bruce J. Sherrick & Jianmei Zhao, 2009. "Integration of VaR and expected utility under departures from normality," Agricultural Economics, International Association of Agricultural Economists, vol. 40(6), pages 691-699, November.

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G0 - Financial Economics - - General

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