From aggregate betting data to individual risk preferences

Pierre-Andre Chiappori, Bernard Salanié, François Salanié and Amit Gandhi
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Pierre-Andre Chiappori: Department of Economics - University of Mannheim = Universität Mannheim
Amit Gandhi: Department of Economics - University of Mannheim = Universität Mannheim

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Abstract: We show that even in the absence of data on individual decisions, the distribution of individual attitudes towards risk can be identified from the aggregate conditions that characterize equilibrium on markets for risky assets. Taking parimutuel horse races as a textbook model of contingent markets, we allow for heterogeneous bettors with very general risk preferences, including non-expected utility. Under a standard single-crossing condition on preferences, we identify the distribution of preferences among the population of bettors and we derive testable implications. We estimate the model on data from U.S. races. Specifications based on expected utility fit the data very poorly. Our results stress the crucial importance of nonlinear probability weighting. They also suggest that several dimensions of heterogeneity may be at work.

Keywords: Identification; revealed preferences; attitudes towards risk (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-rmg and nep-upt
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Citations: View citations in EconPapers (11)

Published in Econometrica, 2019, 87 (1), pp.1-36. ⟨10.3982/ECTA11165⟩

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Related works:
Journal Article: From Aggregate Betting Data to Individual Risk Preferences (2019)
Working Paper: From Aggregate Betting Data to Individual Risk Preferences (2012)
Working Paper: From Aggregate Betting Data to Individual Risk Preferences (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02121859

DOI: 10.3982/ECTA11165

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