Household Portfolios and Implicit Risk Aversion
We derive from a sample of US households the distribution of the risk aversion implicit in their portfolio choice. Our estimate minimizes the distance between the certainty equivalent return generated with observed portfolios and portfolios that are optimal in a mean-variance framework. Taking into account real wealth and constraints in portfolio composition, we obtain a median risk aversion coefficient of 2.7 and observe substantial heterogeneity across individuals. Our analysis informs that risk aversion reduces with wealth and education, and increases with age. Disregarding real wealth and constraints, our estimates are markedly larger and the direction of the above correlations differs. The inferred optimization bias is small, especially with over-simplified portfolios.
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- Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
- Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe & Schupp, Jürgen & Wagner, Gert G., 2005.
"Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey,"
IZA Discussion Papers
1730, Institute for the Study of Labor (IZA).
- Armin Falk & David Huffman & Gert Wagner & Jurgen Schupp & Thomas Dohmen & Uwe Sunde, 2005. "Individual risk attitudes: New evidence from a large, representative, experimentally-validated survey," Framed Field Experiments 00140, The Field Experiments Website.
- Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," Discussion Papers of DIW Berlin 511, DIW Berlin, German Institute for Economic Research.
- Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Juergen Schupp & Gert Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," Working Papers 2096, The Field Experiments Website.
- Dohmen, Thomas J & Falk, Armin & Huffman, David & Schupp, Jürgen & Sunde, Uwe & Wagner, Gert Georg, 2006. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," CEPR Discussion Papers 5517, C.E.P.R. Discussion Papers.
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- Syngjoo Choi & Raymond Fisman & Douglas Gale & Shachar Kariv, 2007. "Consistency and Heterogeneity of Individual Behavior under Uncertainty," American Economic Review, American Economic Association, vol. 97(5), pages 1921-1938, December.
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