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Asset Integration and Attitudes toward Risk: Theory and Evidence

Author

Listed:
  • Steffen Andersen

    (Copenhagen Business School)

  • James C. Cox

    (Georgia State University)

  • Glenn W. Harrison

    (Georgia State University and University of Cape Town)

  • Morten I. Lau

    (Copenhagen Business School and Durham Unversity Business School)

  • E. Elisabet Rutström

    (Örebro University and Stockholm School of Economics)

  • Vjollca Sadiraj

    (Georgia State University)

Abstract

Abstract We provide evidence that choices over small-stakes bets are consistent with assumptions of some payoff calibration paradoxes. We then exploit the existence of detailed information on individual wealth of our experimental subjects in Denmark and directly estimate risk attitudes and the degree of asset integration. We discover that behavior is consistent with partial, rather than full, asset integration. The implied risk attitudes from estimating these specifications indicate risk premiums and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.

Suggested Citation

  • Steffen Andersen & James C. Cox & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström & Vjollca Sadiraj, 2018. "Asset Integration and Attitudes toward Risk: Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 816-830, December.
  • Handle: RePEc:tpr:restat:v:100:y:2018:i:5:p:816-830
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    Cited by:

    1. Siebert, Jan, 2020. "Are the poor more impatient than the rich? Experimental evidence on the effect of (lab) wealth on intertemporal preferences," Ruhr Economic Papers 845, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Han Bleichrodt & Jason N. Doctor & Yu Gao & Chen Li & Daniella Meeker & Peter P. Wakker, 2019. "Resolving Rabin’s paradox," Journal of Risk and Uncertainty, Springer, vol. 59(3), pages 239-260, December.
    3. Sun, Chen & Potters, Jan, 2019. "Magnitude Effect in Intertemporal Allocation Tasks," Rationality and Competition Discussion Paper Series 159, CRC TRR 190 Rationality and Competition.

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