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Is Self-Reported Risk Aversion Time Varying?

  • Seeun Jung

    (PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)

  • Carole Treibich

    ()

    (PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)

We examine a Japanese Panel Survey in order to check whether self-reported risk aversion varies over time. In most panels, risk attitude variables are collected only once (found in only one survey wave), and it is assumed that self-reported risk aversion reects the individual's time-invariant component of preferences toward risk. Nonetheless, the question could be asked as to whether the financial and macro shocks a person faces over his lifetime modify his risk aversion. Our empirical analysis provides evidence that risk aversion is composed of a time-variant part and shows that the variation cannot be ascribed to measurement error or noise given that it is related to income shocks. Taking into account the fact that there are time-variant factors in risk aversion, we investigate how often it is preferable to collect the risk aversion measure in long panel surveys. Our result suggests that the best predictor of current behavior is the average of risk aversion, where risk aversion is collected every two years. It is therefore advisable for risk aversion measures to be collected every two years in long panel surveys.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00965549.

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Date of creation: May 2014
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Handle: RePEc:hal:psewpa:halshs-00965549
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  1. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
  2. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2011. "Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 522-550, 06.
  3. Bernd Hardeweg & Lukas Menkhoff & Hermann Waibel, 2013. "Experimentally Validated Survey Evidence on Individual Risk Attitudes in Rural Thailand," Economic Development and Cultural Change, University of Chicago Press, vol. 61(4), pages 859 - 888.
  4. Manel Baucells & Antonio Villasís, 2010. "Stability of risk preferences and the reflection effect of prospect theory," Theory and Decision, Springer, vol. 68(1), pages 193-211, February.
  5. Brandt, Michael W. & Wang, Kevin Q., 2003. "Time-varying risk aversion and unexpected inflation," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1457-1498, October.
  6. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  7. Anderson, Lisa R. & Mellor, Jennifer M., 2008. "Predicting health behaviors with an experimental measure of risk preference," Journal of Health Economics, Elsevier, vol. 27(5), pages 1260-1274, September.
  8. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-74, June.
  9. Christopher Boyce & Alex Wood & Nattavudh Powdthavee, 2013. "Is Personality Fixed? Personality Changes as Much as “Variable” Economic Factors and More Strongly Predicts Changes to Life Satisfaction," Social Indicators Research, Springer, vol. 111(1), pages 287-305, March.
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