Are risk averse agents more optimistic? A Bayesian estimation approach

Selima Benmansour, Elyès Jouini (), Clotilde Napp, Jean-Michel Marin () and Christian Robert
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Selima Benmansour: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Jean-Michel Marin: SELECT - Model selection in statistical learning - LMO - Laboratoire de Mathématiques d'Orsay - UP11 - Université Paris-Sud - Paris 11 - CNRS - Centre National de la Recherche Scientifique - Centre Inria de Saclay - Inria - Institut National de Recherche en Informatique et en Automatique
Christian Robert: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: Our aim is to analyze the link between optimism and risk aversion in a subjective expected utility setting and to estimate the average level of optimism when weighted by risk tolerance.This quantity is of particular importance since it characterizes the consensus belief in risk-taking situations with heterogeneous beliefs. Its estimation leads to a nontrivial statistical problem. We start from a large lottery survey (1536 individuals). We assume that individuals have true unobservable characteristics and that their answers in the survey are noisy realizations of these characteristics. We adopt a Bayesian approach for the statistical analysis of this problem and use an hybrid MCMC approximation method to numerically estimate the distributions of the unobservable characteristics. We obtain that individuals are on average pessimistic and thatpessimism and risk tolerance are positively correlated. As a consequence, we conclude that theconsensus belief is biased towards pessimism.

Keywords: consensus belief; Bayesian estimation; MCMC scheme; importance sampling; pessimism; risk tolerance; risk aversion; consensus belief. (search for similar items in EconPapers)
Date: 2007-07-17
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00163678v1
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Journal Article: Are risk-averse agents more optimistic? A Bayesian estimation approach (2008)
Working Paper: Are Risk Averse Agents More Optimistic? A Bayesian Estimation Approach (2008)
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