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Is Self-Reported Risk Aversion Time Varying?

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  • Seeun Jung

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Carole Treibich

    ()
    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), Paris School of Economics - Université Paris I - Panthéon-Sorbonne, AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM))

Abstract

We examine a Japanese Panel Survey in order to check whether self-reported risk aversion varies over time. In most panels, risk attitude variables are collected only once (found in only one survey wave), and it is assumed that self-reported risk aversion reects the individual's time-invariant component of preferences toward risk. Nonetheless, the question could be asked as to whether the financial and macro shocks a person faces over his lifetime modify his risk aversion. Our empirical analysis provides evidence that risk aversion is composed of a time-variant part and shows that the variation cannot be ascribed to measurement error or noise given that it is related to income shocks. Taking into account the fact that there are time-variant factors in risk aversion, we investigate how often it is preferable to collect the risk aversion measure in long panel surveys. Our result suggests that the best predictor of current behavior is the average of risk aversion, where risk aversion is collected every two years. It is therefore advisable for risk aversion measures to be collected every two years in long panel surveys.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00965549.

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Date of creation: May 2014
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Handle: RePEc:hal:psewpa:halshs-00965549

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00965549
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Related research

Keywords: Risk Aversion; Panel Data;

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  1. Dohmen, Thomas J. & Falk, Armin & Huffman, David & Sunde, Uwe & Schupp, Jürgen & Wagner, Gert G., 2009. "Individual risk attitudes: Measurement, determinants and behavioral consequences," Munich Reprints in Economics 20049, University of Munich, Department of Economics.
  2. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-43, June.
  3. Brandt, Michael W. & Wang, Kevin Q., 2003. "Time-varying risk aversion and unexpected inflation," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1457-1498, October.
  4. Christopher Boyce & Alex Wood & Nattavudh Powdthavee, 2013. "Is Personality Fixed? Personality Changes as Much as “Variable” Economic Factors and More Strongly Predicts Changes to Life Satisfaction," Social Indicators Research, Springer, vol. 111(1), pages 287-305, March.
  5. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  6. Manel Baucells & Antonio Villasís, 2010. "Stability of risk preferences and the reflection effect of prospect theory," Theory and Decision, Springer, vol. 68(1), pages 193-211, February.
  7. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-74, June.
  8. Hardeweg, Bernd & Menkhoff, Lukas & Waibel, Hermann, 2011. "Experimentally-validated survey evidence on individual risk attitudes in rural Thailand," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-464, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  9. Anderson, Lisa R. & Mellor, Jennifer M., 2008. "Predicting health behaviors with an experimental measure of risk preference," Journal of Health Economics, Elsevier, vol. 27(5), pages 1260-1274, September.
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