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To what extent does income predict an individual’s risk profile in the UK (2012- 2014)

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  • Wright, Joshua
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    This study seeks to estimate whether income is predictive of an individual’s risk profile. The consensus amongst the existing literature is that income is predictive of an individual’s risk profile and the two do have a relationship. This study uses a quantitative approach by estimating a series of statistical models that estimate the relationship between an individual’s income and their risk profile using a large UK based longitudinal dataset. The research finds that income is positively related to risk and that for every £1,000 increase in income, an individual’s odds of becoming risk seeking increase by 1%. Moreover, the research finds that not only is income predictive of an individual’s risk, but so too are;; gender, education level, age and self-employment.

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    File URL: https://mpra.ub.uni-muenchen.de/80757/1/MPRA_paper_80757.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 80757.

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    Date of creation: 10 Aug 2017
    Handle: RePEc:pra:mprapa:80757
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    1. Yesuf, Mahmud & Bluffstone, Randy, 2007. "Risk aversion in low income countries: Experimental evidence from Ethiopia," IFPRI discussion papers 715, International Food Policy Research Institute (IFPRI).
    2. Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
    3. 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.
    4. Cohn, Richard A, et al, 1975. "Individual Investor Risk Aversion and Investment Portfolio Composition," Journal of Finance, American Finance Association, vol. 30(2), pages 605-620, May.
    5. Ernesto Villanueva, 2007. "Estimating Compensating Wage Differentials Using Voluntary Job Changes: Evidence from Germany," ILR Review, Cornell University, ILR School, vol. 60(4), pages 544-561, July.
    6. Donkers, Bas & Melenberg, Bertrand & Van Soest, Arthur, 2001. "Estimating Risk Attitudes Using Lotteries: A Large Sample Approach," Journal of Risk and Uncertainty, Springer, vol. 22(2), pages 165-195, March.
    7. Schooley, Diane K. & Worden, Debra Drecnik, 1996. "Risk aversion measures: comparing attitudes and asset allocation," Financial Services Review, Elsevier, vol. 5(2), pages 87-99.
    8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    9. Flachaire, Emmanuel & Hollard, Guillaume, 2008. "Individual sensitivity to framing effects," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 296-307, July.
    10. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Wiley Blackwell, vol. 55(1), pages 3-26.
    11. Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 537-579.
    12. Bellante, Don & Green, Carole A., 2004. "Relative risk aversion among the elderly," Review of Financial Economics, Elsevier, vol. 13(3), pages 269-281.
    13. Cook, William & Whittle, Richard, 2015. "Do individuals’ risk and time preferences predict entrepreneurial choice?," MPRA Paper 66674, University Library of Munich, Germany.
    14. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, vol. 82(5), pages 1120-1141, December.
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