The Role of Risk Aversion in Predicting Individual Behaviours

Luigi Guiso and Michaela Pagel
Authors registered in the RePEc Author Service: 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: Risk aversion; Heterogenous preferences; Individual choice (search for similar items in EconPapers)
JEL-codes: D10 D80 (search for similar items in EconPapers)
Date: 2004-09
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Citations: View citations in EconPapers (21)

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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)
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