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Are risk averse agents more optimistic? A Bayesian estimation approach

  • Selima Benmansour

    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)

  • Elyès Jouini

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)

  • Clotilde Napp

    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)

  • Jean-Michel Marin

    (INRIA Futurs - A3 - INRIA - Université Paris Sud - Paris XI)

  • Christian Robert

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)

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 (1536 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 thatpessimism and risk tolerance are positively correlated. As a consequence, we conclude that theconsensus belief is biased towards pessimism.

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Date of creation: 17 Jul 2007
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Handle: RePEc:hal:wpaper:halshs-00163678
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