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Are Risk-Averse Agents more Optimistic? A Bayesian Estimation Approach

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  • Robert, Christian P.
  • Napp, Clotilde
  • Marin, Jean-Michel
  • Jouini, Elyès
  • Ben Mansour, Selima
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    Abstract

    Our aim is to analyze the link between optimism and risk aversion in a subjective expected utility setting and to estimate the average level of optimism when weighted by risk tolerance. Its estimation leads to a non-trivial statistical problem. We start from a large lottery survey (1536 individuals). We assume that individuals have true unobservable characteristics. We adopt a Bayesian approach and use a hybrid MCMC approximation method to numerically estimate the distributions of the unobservable characteristics. We find that individuals are on average pessimistic and that pessimism and risk tolerance are positively correlated.

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    File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/2324/1/Ben_mansour_Marin.pdf
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    Bibliographic Info

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/2324.

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    Date of creation: Sep 2008
    Date of revision:
    Publication status: Published in Journal of Applied Econometrics, 2008, Vol. 23, no. 6. pp. 843-860.Length: 17 pages
    Handle: RePEc:dau:papers:123456789/2324

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    Related research

    Keywords: Bayesian Estimation; MCMC Scheme; Importance Sampling; Pessimism; Risk Tolerance; Risk Aversion; Consensus Belief;

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    1. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Wiley Blackwell, vol. 55(1), pages 3-26.
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    3. Jianakoplos, Nancy Ammon & Bernasek, Alexandra, 1998. "Are Women More Risk Averse?," Economic Inquiry, Western Economic Association International, vol. 36(4), pages 620-30, October.
    4. Weil, Philippe, 1989. "The equity premium puzzle and the risk-free rate puzzle," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 401-421, November.
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    7. Hariharan, Govind & Chapman, Kenneth S. & Domian, Dale L., 2000. "Risk tolerance and asset allocation for investors nearing retirement," Financial Services Review, Elsevier, vol. 9(2), pages 159-170, 00.
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    Cited by:
    1. Giuseppe Albanese & Guido de Blasio & Paolo Sestito, 2013. "Trust and preferences: evidence from survey data," Temi di discussione (Economic working papers) 911, Bank of Italy, Economic Research and International Relations Area.
    2. Menapace, Luisa & Colson, Gregory, 2012. "On the Validity of Gamble Tasks to Assess Farmers' Risk Attitudes," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124601, Agricultural and Applied Economics Association.

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