Search results
- Using house prices as an indicator of investor wealth, we find that investors' willingness to take risk in LC is affected by their outside wealth: wealthier investors are more risk averse, but any given investor becomes more risk averse after a negative wealth shock. These wealth elasticities consistently extrapolate to other investor decisions.
www.nber.org › system › filesRisk Aversion and Wealth: Evidence from Person-to-Person ...
Estimates of risk aversion based on the share of risky assets pose an additional problem when used to analyze the link between heterogeneity in risk preferences and wealth: Measurement error in wealth is inherited by the risk aversion estimates, and may induce a spurious correlation between the two.
Jan 1, 2023 · Understanding the effect of future wealth on risk aversion is essential for uncovering the puzzle of why household savings is low in the United States. In particular, there are compelling reasons to believe that many choices are motivated, in part, by how we imagine our future states of wealth.
Tests of risk sharing in the contracting literature often rely on wealth as a proxy for risk aversion. intuition behind these tests is that since contract choice is monotonie in the coefficients of risk aversion, which are themselves assumed monotonie in wealth, the effect of a change in wealth on contract choice. is clearly identified.
Risk Aversion Causes Wealth? Individuals with low risk aversion will tend to take chances. Some will win, some will lose. Consequently, the rich and the poor should tend to have low risk aversion. Conversely, individuals with high risk aversion will tend to play it safe. Consequently the middle class will tend to have high risk aversion.
Using house prices as an indicator of investor wealth, we find that investors' willingness to take risk in LC is affected by their outside wealth: wealthier investors are more risk averse, but any given investor becomes more risk averse after a negative wealth shock.
Aug 1, 2016 · 1. Introduction. The assumption that agent׳s relative risk aversion decreases with wealth is appealing because it provides an important mechanism that helps explain numerous economic phenomena.
Jan 1, 2010 · We show that tests of risk sharing relying on wealth as a proxy for risk aversion are identified only insofar as the econometrician is willing to assume that (a) the principal is risk neutral or her preferences exhibit constant absolute risk aversion (CARA); and (b) the agent is risk neutral.
