Imputing Risk Tolerance from Survey Responses

Miles Kimball, Claudia Sahm and Matthew Shapiro

No 13337, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Economic theory assigns a central role to risk preferences. This paper develops a measure of relative risk tolerance using responses to hypothetical income gambles in the Health and Retirement Study. In contrast to most survey measures that produce an ordinal metric, this paper shows how to construct a cardinal proxy for the risk tolerance of each survey respondent. The paper also shows how to account for measurement error in estimating this proxy and how to obtain consistent regression estimates despite the measurement error. The risk tolerance proxy is shown to explain differences in asset allocation across households.

JEL-codes: C24 C42 E21 G11 (search for similar items in EconPapers)
Date: 2007-08
New Economics Papers: this item is included in nep-mac
Note: AP EFG ME
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Citations: View citations in EconPapers (11)

Published as Kimball, Miles S & Sahm, Claudia R & Shapiro, Matthew D, 2008. "Imputing Risk Tolerance From Survey Responses," Journal of the American Statistical Association, American Statistical Association, vol. 103(483), pages 1028-1038.

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