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Stability of risk preference Author info | Abstract | Publisher info | Download info | Related research | Statistics Claudia R. Sahm
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Stability of preferences is central to how economists study behavior. This paper uses panel data on hypothetical gambles over lifetime income in the Health and Retirement Study to quantify changes in risk tolerance over time and differences across individuals. The maximum-likelihood estimation of a correlated random effects model utilizes information from 12,000 respondents in the 1992-2002 HRS. The results support constant relative risk aversion and career selection on preferences. While risk tolerance changes with age and macroeconomic conditions, persistent differences across individuals account for 73% of the systematic variation. The measure of risk tolerance also relates to actual stock ownership.
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number
2007-66.
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Date of creation: 2007Date of revision:
Handle: RePEc:fip:fedgfe:2007-66Contact details of provider: Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551 Web page: http://www.federalreserve.gov/ More information through EDIRC
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Keywords: Risk-taking (Psychology) ; Risk ; This paper has been announced in the following NEP Reports :
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Nicola Fuchs-Schundeln & Matthias Schundeln, 2005.
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Other versions:
Bronwyn H. Hall & Jacques Mairesse & Laure Turner, 2005.
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Dohmen, Thomas J & Falk, Armin & Huffman, David & Sunde, Uwe, 2008.
"The Intergenerational Transmission of Risk and Trust Attitudes ,"
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6844, C.E.P.R. Discussion Papers.
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Charles A. Holt & Susan K. Laury, 2002.
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Lee Lillard & Robert J. Willis, 2001.
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Chamberlain, Gary, 1984.
"Panel data ,"
Handbook of Econometrics ,
in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318
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Melvin Stephens, 2001.
"The Long-Run Consumption Effects Of Earnings Shocks ,"
The Review of Economics and Statistics ,
MIT Press, vol. 83(1), pages 28-36, February.
[Downloadable!] (restricted)
Miles S. Kimball & Claudia R. Sahm & Matthew D. Shapiro, 2007.
"Imputing Risk Tolerance from Survey Responses ,"
NBER Working Papers
13337, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: Nicola Fuchs-Schündeln & Matthias Schündeln, 2005.
"Precautionary Savings and Self-Selection: Evidence from the German Reunification "Experiment" ,"
The Quarterly Journal of Economics ,
MIT Press, vol. 120(3), pages 1085-1120, August.
Matthew Rabin, 2000.
"Risk Aversion and Expected-Utility Theory: A Calibration Theorem ,"
Econometrica ,
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Matthew Rabin, 2000.
"Risk Aversion and Expected-Utility Theory: A Calibration Theorem ,"
Department of Economics, Working Paper Series
1034, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
[Downloadable!]
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Daniel J. Benjamin & James J. Choi & A. Joshua Strickland, 2007.
"Social Identity and Preferences ,"
NBER Working Papers
13309, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Miles S. Kimball & Claudia R. Sahm & Matthew D. Shapiro, 2007.
"Imputing Risk Tolerance from Survey Responses ,"
NBER Working Papers
13337, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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