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Abstract

Individuals' risk preferences are estimated and employed in a variety of settings, notably including choices in financial, labor, and product markets. Recent work, especially in financial economics, provides estimates of individuals' coefficients of relative risk aversion (CRRA's) in excess of one, and often significantly higher. However, it can be shown that high CRRA's imply equally high values for the income elasticity of the value of a statistical life. Yet estimates of this elasticity, derived from labor and product markets, are in the range of 0.5 to 0.6. Furthermore, it turns out that even a CRRA below one is difficult to reconcile with these elasticity estimates. Thus, there appears to be an important (additional) anomaly involving individuals' risk-taking behavior in different market settings.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9852.

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Date of creation: Jul 2003
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Handle: RePEc:nbr:nberwo:9852

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Find related papers by JEL classification:

• D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
• G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

This paper has been announced in the following NEP Reports:

• NEP-HEA-2003-07-21 (Health Economics)
• NEP-MIC-2003-07-21 (Microeconomics)
• NEP-RMG-2003-07-21 (Risk Management)

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