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Are Risk Averse Agents More Optimistic? A Bayesian Estimation Approach

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  • Elyès Jouini

    () (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Selima Ben Mansour

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Clotilde Napp

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Jean-Michel Marin

    () (SELECT - Model selection in statistical learning - Inria Saclay - Ile de France - Inria - Institut National de Recherche en Informatique et en Automatique - LMO - Laboratoire de Mathématiques d'Orsay - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - CNRS - Centre National de la Recherche Scientifique)

  • Christian Robert

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

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. This quantity is of particular importance since it characterizes the consensus belief in risk-taking situations with heterogeneous beliefs. Its estimation leads to a nontrivial statistical problem. We start from a large lottery survey (1,536 individuals). We assume that individuals have true unobservable characteristics and that their answers in the survey are noisy realizations of these characteristics. We adopt a Bayesian approach for the statistical analysis of this problem and use an hybrid MCMC approximation method to numerically estimate the distributions of the unobservable characteristics. We obtain that individuals are on average pessimistic and that pessimism and risk tolerance are positively correlated. As a consequence, we conclude that the consensus belief is biased towards pessimism.

Suggested Citation

  • Elyès Jouini & Selima Ben Mansour & Clotilde Napp & Jean-Michel Marin & Christian Robert, 2008. "Are Risk Averse Agents More Optimistic? A Bayesian Estimation Approach," Post-Print halshs-00176629, HAL.
  • Handle: RePEc:hal:journl:halshs-00176629
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00176629v2
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Elyès Jouini & Clotilde Napp, 2008. "Are More Risk-Averse Agents More Optimistic? Insights from a Simple Rational Expectations Equilibrium Model," Post-Print halshs-00176630, HAL.
    2. Weinstock, Eyal & Sonsino, Doron, 2014. "Are risk-seekers more optimistic? Non-parametric approach," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 236-251.
    3. 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.
    4. 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.
    5. Giuseppe Albanese & Guido de Blasio & Paolo Sestito, 2013. "Trust and preferences: evidence from survey data," Temi di discussione (Economic working papers) 911, Bank of Italy, Economic Research and International Relations Area.
    6. Luisa Menapace & Gregory Colson & Roberta Raffaelli, 2016. "A comparison of hypothetical risk attitude elicitation instruments for explaining farmer crop insurance purchases," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 43(1), pages 113-135.
    7. 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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    Keywords

    Bayesian estimation; MCMC scheme; importance sampling; pessimism; risk tolerance; risk aversion; consensus belief;

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