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Are risk-averse agents more optimistic? A Bayesian estimation approach

  • Selima Ben Mansour

    (DRM, UMR-CNRS 7088, Université Paris-Dauphine, France)

  • Elyès Jouini

    (CEREMADE, UMR-CNRS 7534, Université Paris-Dauphine, France)

  • Jean-Michel Marin

    (INRIA Saclay, Projet SELECT , Laboratoire de Mathématiques, Université Paris-Sud, France)

  • Clotilde Napp

    (DRM, UMR-CNRS 7088, Université Paris-Dauphine, France)

  • Christian Robert

    (CEREMADE, UMR-CNRS 7534, Université Paris-Dauphine, France)

Our aim is to analyze the link between optimism and risk aversion in a subjective expected utility setting and to estimate the average level of optimism when weighted by risk tolerance. Its estimation leads to a non-trivial statistical problem. We start from a large lottery survey (1536 individuals). We assume that individuals have true unobservable characteristics. We adopt a Bayesian approach and use a hybrid MCMC approximation method to numerically estimate the distributions of the unobservable characteristics. We find that individuals are on average pessimistic and that pessimism and risk tolerance are positively correlated. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1027
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 23 (2008)
Issue (Month): 6 ()
Pages: 843-860

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Handle: RePEc:jae:japmet:v:23:y:2008:i:6:p:843-860
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