THE ROLE OF RISK AVERSION IN PREDICTING INDIVIDUAL BEHAVIOR

Luigi Guiso and Monica Paiella

No 546, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay to buy a risky asset. We relate this measure to a set of consumers� decisions that in theory should vary with attitude towards risk. We find that elicited risk aversion has considerable predictive power for a number of key household decisions such as choice of occupation, portfolio selection, moving decisions and exposure to chronic diseases in ways consistent with theory. We also use this indicator to address the importance of self-selection when relating indicators of risk to individual saving decisions.

Keywords: risk aversion; heterogeneous preferences; choice under risk; entrepreneurship; self selection. (search for similar items in EconPapers)
JEL-codes: D1 D8 (search for similar items in EconPapers)
Date: 2005-02
New Economics Papers: this item is included in nep-cbe, nep-cfn and nep-ent
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Citations: View citations in EconPapers (64)

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Related works:
Working Paper: The Role of Risk Aversion in Predicting Individual Behaviours (2004)
Working Paper: The Role of Risk Aversion in Predicting Individual Behaviour (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_546_05

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