Is Risk Aversion Really Correlated with Wealth? How Estimated Probabilities Introduce Spurious Correlation

Travis Lybbert and David Just

American Journal of Agricultural Economics, 2007, vol. 89, issue 4, 964-979

Abstract: Economists frequently focus on correlations between wealth and risk preferences but rarely observe the probabilities needed to test this relationship empirically. These unobserved probabilities are typically estimated via profit or production functions conditioned on wealth correlates, which may leave statistical fingerprints on subsequently-estimated risk aversion coefficients and confound correlations between wealth and risk preferences. Using data from an experiment with observable probabilities, we compare risk aversion coefficients based on true probabilities with those based on probabilities estimated using standard approaches and show how estimated probabilities can change risk aversion coefficients substantially and introduce spurious correlation between risk aversion and wealth. Copyright 2007, Oxford University Press.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://hdl.handle.net/10.1111/j.1467-8276.2007.01034.x (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Is Risk Aversion Really Correlated with Wealth? How estimated probabilities introduce spurious correlation (2006)
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: https://EconPapers.repec.org/RePEc:oup:ajagec:v:89:y:2007:i:4:p:964-979

Access Statistics for this article

American Journal of Agricultural Economics is currently edited by Madhu Khanna, Brian E. Roe, James Vercammen and JunJie Wu

More articles in American Journal of Agricultural Economics from Agricultural and Applied Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().