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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Selima Ben Mansour & Elyès Jouini & Jean-Michel Marin & Clotilde Napp & Christian Robert, 2008. "Are risk-averse agents more optimistic? A Bayesian estimation approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 843-860.
    • Handle: RePEc:jae:japmet:v:23:y:2008:i:6:p:843-860
    DOI: 10.1002/jae.1027
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    5. Christian Gollier & Alexander Muermann, 2010. "Optimal Choice and Beliefs with Ex Ante Savoring and Ex Post Disappointment," Management Science, INFORMS, vol. 56(8), pages 1272-1284, August.
    6. Alessandro Bucciol & Raffaele Miniaci, 2011. "Household Portfolios and Implicit Risk Preference," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1235-1250, November.
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    9. Jouini, Elyès & Napp, Clotilde, 2008. "Are more risk averse agents more optimistic? Insights from a rational expectations model," Economics Letters, Elsevier, vol. 101(1), pages 73-76, October.

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