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Risk Aversion at the Country Level

  • Gandelman, Nestor

    (Universidad ORT Uruguay)

  • Hernandez-Murillo, Ruben

    (Federal Reserve Bank of St. Louis)

In this paper we provide estimates of the coefficient of relative risk aversion for 80 countries using data on self-reports of personal well-being from the Gallup World Poll. For most countries we cannot reject the null hypothesis that the coefficient of relative risk aversion equals 1. We conclude that our result supports the use of the log utility function in numerical simulations.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2014-5.

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Length: 11 pages
Date of creation: 01 Feb 2014
Date of revision:
Handle: RePEc:fip:fedlwp:2014-005
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  1. Néstor Gandelman & Rafael Porzecanski, 2013. "Happiness Inequality: How Much is Reasonable?," Social Indicators Research, Springer, vol. 110(1), pages 257-269, January.
  2. GARCIA,René & LUGER, Richard & RENAULT, Éric, 2001. "Empirical Assessment of an Intertemporal Option Pricing Model with Latent variables," Cahiers de recherche 2001-10, Universite de Montreal, Departement de sciences economiques.
  3. Geweke, John, 2001. "A note on some limitations of CRRA utility," Economics Letters, Elsevier, vol. 71(3), pages 341-345, June.
  4. Szpiro, George G. & Outreville, Jean-Francois, 1988. "Relative risk aversion around the world : Further results," Journal of Banking & Finance, Elsevier, vol. 6(1, Supple), pages 127-128, January.
  5. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  6. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07.
  7. Gasparini, Leonardo & Gluzmann, Pablo, 2009. "Estimating income poverty and inequality from the Gallup World Poll: The case of Latin America and the Caribbean," MPRA Paper 42928, University Library of Munich, Germany.
  8. Gordon, Stephen & St-Amour, Pascal, 2003. "Asset Returns and State-Dependent Risk Preferences," Cahiers de recherche 0316, CIRPEE.
  9. Gandelman, Néstor & Hernández-Murillo, Rubén, 2013. "What do happiness and health satisfaction data tell us about relative risk aversion?," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 301-312.
  10. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
  11. Kapteyn, Arie & Teppa, Federica, 2011. "Subjective measures of risk aversion, fixed costs, and portfolio choice," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 564-580, August.
  12. Raj Chetty, 2006. "A New Method of Estimating Risk Aversion," American Economic Review, American Economic Association, vol. 96(5), pages 1821-1834, December.
  13. George MacKerron, 2012. "Happiness Economics From 35 000 Feet," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 705-735, 09.
  14. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
  15. Mankiw, N Gregory, 1985. "Consumer Durables and the Real Interest Rate," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 353-62, August.
  16. Kenneth G. Stewart, 2011. "The Optimal Construction of Instruments in Nonlinear Regression: Implications for GMM Inference," Econometrics Working Papers 1107, Department of Economics, University of Victoria.
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