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Estimating Risk Aversion from Arrow-Debreu Portfolio Choice

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  • Varian, Hal R

Abstract

This paper derives necessary and sufficient conditions for Arrow-Debreu choices of contingent consumption to be compatibl e with the maximization of a state-independent expected utility funct ion that exhibits increasing or decreasing absolute risk aversion, or increasing or decreasing relative risk aversion. The conditions can be used to bound different measures of risk aversion based on a singl e observation of Arrow-Debreu portfolio choice. Copyright 1988 by The Econometric Society.

Suggested Citation

  • Varian, Hal R, 1988. "Estimating Risk Aversion from Arrow-Debreu Portfolio Choice," Econometrica, Econometric Society, vol. 56(4), pages 973-979, July.
    • Handle: RePEc:ecm:emetrp:v:56:y:1988:i:4:p:973-79
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    Cited by:

    1. Matthew Polisson & John K.-H. Quah & Ludovic Renou, 2020. "Revealed Preferences over Risk and Uncertainty," American Economic Review, American Economic Association, vol. 110(6), pages 1782-1820, June.
    2. Ian Crawford & Bram De Rock, 2014. "Empirical Revealed Preference," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 503-524, August.
    3. Mateane, Lebogang, 2023. "Risk preferences, global market conditions and foreign debt: Is there any role for the currency composition of FX reserves?," Research in Economics, Elsevier, vol. 77(3), pages 402-418.
    4. Alistair C. Bruce & Johnnie E. V. Johnson & John D. Peirson & Jiejun Yu, 2009. "An Examination of the Determinants of Biased Behaviour in a Market for State Contingent Claims," Economica, London School of Economics and Political Science, vol. 76(302), pages 282-303, April.
    5. Subir Bose & Matthew Polisson & Ludovic Renou, 2012. "Ambiguity Revealed," Discussion Papers in Economics 12/07, Division of Economics, School of Business, University of Leicester.
    6. Aluma Dembo & Shachar Kariv & Matthew Polisson & John Quah, 2021. "Ever since Allais," IFS Working Papers W21/15, Institute for Fiscal Studies.
    7. Felix Kubler & Larry Selden & Xiao Wei, 2014. "Asset Demand Based Tests of Expected Utility Maximization," American Economic Review, American Economic Association, vol. 104(11), pages 3459-3480, November.
    8. Demuynck, Thomas & Hjertstrand, Per, 2019. "Samuelson's Approach to Revealed Preference Theory: Some Recent Advances," Working Paper Series 1274, Research Institute of Industrial Economics.
    9. Thomas Demuynck & Clément Staner, 2020. "An Efficient Revealed Preference Test for the Maxmin Expected Utility Model," Working Papers ECARES 2020-31, ULB -- Universite Libre de Bruxelles.

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