Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey
AbstractIndividuals' preferences underlying most economic behavior are likely to display substantial heterogeneity. This paper reports on direct measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These experimental measures are based on survey respondents' choices in hypothetical situations. The questions are constructed with as little departure from the theorist's concept of the underlying parameter as possible. The individual measures of preference parameters display substantial heterogeneity. The majority of respondents fall into the least risk-tolerant group, but a substantial minority display higher risk tolerance. The individual measures of intertemporal substitution and time preference also display substantial heterogeneity. The mean risk tolerance is 0.25; the mean elasticity of intertemporal substitution is 0.2. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Because the risk tolerance measure is obtained as part of the main questionnaire of a large survey, it can be related to a number of economic behaviors. Measured risk tolerance is positively related to a number of risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. Although measured risk tolerance explains only a small fraction of the variation of the studied behaviors, these estimates provide evidence about the validity and usefulness of the measures of preference parameters.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5213.
Date of creation: Aug 1995
Date of revision:
Publication status: published as Quarterly Journal of Economics, Vol. 112 (May 1997): 537-579.
Note: AP EFG ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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.:
- Miles Kimball & Philippe Weil, 1992.
"Precautionary Saving and Consumption Smoothing Across Time and Possibilities,"
NBER Working Papers
3976, National Bureau of Economic Research, Inc.
- Miles Kimball & Philippe Weil, 2009. "Precautionary Saving and Consumption Smoothing across Time and Possibilities," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(2-3), pages 245-284, 03.
- Kimball, Miles S & Weil, Philippe, 2003. "Precautionary Saving and Consumption Smoothing Across Time and Possibilities," CEPR Discussion Papers 4005, C.E.P.R. Discussion Papers.
- Kimball, M. & Weil, P., 1991. "Precautionary Savings and Consumption Smoothing Across Time and Possibilities," Harvard Institute of Economic Research Working Papers 1563, Harvard - Institute of Economic Research.
- Miles Kimball & Philippe Weil, 1992. "Precautionary Saving and Consumption Smoothing Across Time and Possibilities," Sciences Po publications 3976, Sciences Po.
- Philippe Weil & Miles Kimball, 2008. "Precautionary saving and consumption smoothing across time and possibilities," ULB Institutional Repository 2013/13432, ULB -- Universite Libre de Bruxelles.
- Miles Kimball & Philippe Weil, 2003. "Precautionary Saving and Consumption Smoothing Across Time and Possibilities," Sciences Po publications 4005, Sciences Po.
- Christopher D. Carroll, 1992.
"How does future income affect current consumption?,"
Working Paper Series / Economic Activity Section
126, Board of Governors of the Federal Reserve System (U.S.).
- Carroll, Christopher D, 1994. "How Does Future Income Affect Current Consumption?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 111-47, February.
- repec:spo:wpecon:info:hdl:2441/8703 is not listed on IDEAS
- John H. Cochrane & Lars Peter Hansen, 1992.
"Asset Pricing Explorations for Macroeconomics,"
NBER Working Papers
4088, National Bureau of Economic Research, Inc.
- Robert S. Pindyck, 1986.
"Risk Aversion and Determinants of Stock Market Behavior,"
NBER Working Papers
1921, National Bureau of Economic Research, Inc.
- Pindyck, Robert S, 1988. "Risk Aversion and Determinants of Stock Market Behavior," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 183-90, May.
- Pindyck, Robert S., 1986. "Risk aversion and determinants of stock market behavior," Working papers 1801-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics, Elsevier,
Elsevier, vol. 15(2), pages 145-161, March.
- Hans Binswanger, 1980. "Attitudes toward risk: Experimental measurement in rural india," Artefactual Field Experiments 00009, The Field Experiments Website.
- Barsky, Robert B, 1989.
"Why Don't the Prices of Stocks and Bonds Move Together?,"
American Economic Review,
American Economic Association, vol. 79(5), pages 1132-45, December.
- Robert B. Barsky, 1986. "Why Don't the Prices of Stocks and Bonds Move Together?," NBER Working Papers 2047, National Bureau of Economic Research, Inc.
- Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-74, June.
- Victor R. Fuchs, 1982.
"Time Preference and Health: An Exploratory Study,"
in: Economic Aspects of Health, pages 93-120
National Bureau of Economic Research, Inc.
- Hall, Robert E, 1988.
"Intertemporal Substitution in Consumption,"
Journal of Political Economy, University of Chicago Press,
University of Chicago Press, vol. 96(2), pages 339-57, April.
- Szpiro, George G, 1986. "Measuring Risk Aversion: An Alternative Approach," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 156-59, February.
- Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
- Robert J. Shiller & Maxim Boycko & Vladimir Korobov, 1992. "Hunting for Homo Sovieticus: Situational versus Attitudinal Factors in Economic Behavior," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 127-194.
- Weber, Warren E, 1970. "The Effect of Interest Rates on Aggregate Consumption," American Economic Review, American Economic Association, vol. 60(4), pages 591-600, September.
- Weil, Philippe, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(1), pages 29-42, February.
- Breeden, Douglas T., 1979. "An intertemporal asset pricing model with stochastic consumption and investment opportunities," Journal of Financial Economics, Elsevier, Elsevier, vol. 7(3), pages 265-296, September.
- Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
- Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(1), pages 113-34, February.
- Mankiw, N. Gregory, 1981. "The permanent income hypothesis and the real interest rate," Economics Letters, Elsevier, vol. 7(4), pages 307-311.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Dan Benjamin, Mark Fontana and I Design an In-Depth Risk Aversion Survey
by ? in Confessions of a Supply-Side Liberal on 2013-03-01 08:01:36
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.