Subjective Measures of Risk Aversion and Portfolio Choice
AbstractThe paper investigates risk attitudes among different types of individuals. The authors use several different measures of risk attitudes, including questions on choices between uncertain income streams suggested by Barsky et al. (1997) and a number of ad hoc measures. As in Barsky et al. (1997) and Arrondel (2002), the authors first analyse individual variation in the risk aversion measures and explain them by background characteristics (both "objective" characteristics and other subjective measures of risk preference). Next, the authors incorporate the measured risk attitudes into a household partfolio allocation model, which explains portfolio shares, while accounting for incomplete portfolios. The authors results show that the Barsky et al. (1997) measure has little explanatory power, whereas ad hoc measures do a considerably better job. The authors provide a discussion of the reasons for this finding.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2002-11.
Date of creation: 2002
Date of revision:
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risk aversion; portfolio choice; subjective measures; econometric models;
Other versions of this item:
- Arie Kapteyn & Federica Teppa, 2002. "Subjective Measures of Risk Aversion and Portfolio Choice," Working Papers 02-03, RAND Corporation Publications Department.
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- C9 - Mathematical and Quantitative Methods - - Design of Experiments
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-04-03 (All new papers)
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