The Role of Risk Aversion in Predicting Individual Behaviours

Luigi Guiso () and Monica Paiella

No 4591, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: heterogenous preferences; individual choice; risk aversion (search for similar items in EconPapers)
JEL-codes: D10 D80 (search for similar items in EconPapers)
Date: 2004-09
View citations in EconPapers

Downloads: (external link)
http://www.cepr.org/pubs/dps/DP4591.asp (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: THE ROLE OF RISK AVERSION IN PREDICTING INDIVIDUAL BEHAVIOR (2005)
Working Paper: The Role of Risk Aversion in Predicting Individual Behaviour (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:cpr:ceprdp:4591

Ordering information: This working paper can be ordered from
http://www.cepr.org/pubs/dps/DP4591.asp

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers
Address: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Series data maintained by ().