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Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios

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  • Daniel Paravisini
  • Veronica Rappoport
  • Enrichetta Ravina

Abstract

We estimate risk aversion from the actual financial decisions of 2,168 investors in Lending Club (LC), a person-to-person lending platform. We develop a methodology that allows us to estimate risk aversion parameters from each portfolio choice. Since the same individual makes repeated investments, we are able to construct a panel of risk aversion parameters that we use to disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specific risk aversion to changes in wealth. In the cross section, we find that wealthier investors are more risk averse. Using changes in house prices as a source of variation, we find that investors become more risk averse after a negative wealth shock. These preferences consistently extrapolate to other investor decisions within LC.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16063.

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Date of creation: Jun 2010
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Handle: RePEc:nbr:nberwo:16063

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Cited by:
  1. Koehne, Sebastian & Kuhn, Moritz, 2013. "Optimal capital taxation for time-nonseparable preferences," MPRA Paper 45203, University Library of Munich, Germany.
  2. Tran, Ngoc-Khanh & Zeckhauser, Richard J., 2011. "The Behavior of Savings and Asset Prices When Preferences and Beliefs Are Heterogeneous," Working Paper Series rwp11-026, Harvard University, John F. Kennedy School of Government.
  3. Patrick Bolton & Christopher Harris, 2005. "The Dynamics of Optimal Risk Sharing," Economics Working Papers 0092, Institute for Advanced Study, School of Social Science, revised May 2010.
  4. Michael Ewens & Bryan Tomlin & Liang Choon Wang, 2012. "Statistical Discrimination or Prejudice? A Large Sample Field Experiment," Monash Economics Working Papers 23-12, Monash University, Department of Economics.
  5. Adam Eric Greenberg, 2013. "When imagining future wealth influences risky decision making," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(3), pages 268-277, May.
  6. Zhang, Bei & Chu, Rong-Wei & Nie, Jun, 2014. "Wealth distribution with state-dependent risk aversion," Research Working Paper RWP 13-9, Federal Reserve Bank of Kansas City.

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