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People Are Less Risk-Averse than Economists Think

Author

Listed:
  • Ali Elminejad

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • Tomas Havranek

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & CEPR)

  • Zuzana Irsova

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

Abstract

We collect 1,021 estimates from 92 studies that use the consumption Euler equation to measure relative risk aversion and that disentangle it from intertemporal substitution. We show that calibrations of risk aversion are typically larger than estimates thereof. Moreover, reported estimates are typically larger than the underlying risk aversion because of publica- tion bias. After correction for the bias, the literature suggests a mean risk aversion of 1 in economics and 2-7 in finance contexts. The reported estimates are systematically driven by the characteristics of data (frequency, dimension, country, stockholding) and utility (func- tional form, treatment of durables). To obtain these results we use nonlinear techniques to correct for publication bias and Bayesian model averaging techniques to account for model uncertainty.

Suggested Citation

  • Ali Elminejad & Tomas Havranek & Zuzana Irsova, 2022. "People Are Less Risk-Averse than Economists Think," Working Papers IES 2022/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2022.
    • Handle: RePEc:fau:wpaper:wp2022_14
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    File URL: https://ies.fsv.cuni.cz/en/veda-vyzkum/working-papers/6642
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    Cited by:

    1. Tersoo David Iorngurum, 2023. "Method Versus Cross-Country Heterogeneity in the Exchange Rate Pass-Through," Working Papers IES 2023/16, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2023.

    More about this item

    Keywords

    Euler equation; risk aversion; Epstein-Zin preferences; meta-analysis; publication bias; Bayesian model averaging;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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