Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios

Daniel Paravisini, Veronica Rappoport and Enrichetta Ravina

No 16063, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate risk aversion from the actual financial decisions of 2,168 investors in Lending Club (LC), a person-to-person lending platform. We develop a methodology that allows us to estimate risk aversion parameters from each portfolio choice. Since the same individual makes repeated investments, we are able to construct a panel of risk aversion parameters that we use to disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specific risk aversion to changes in wealth. In the cross section, we find that wealthier investors are more risk averse. Using changes in house prices as a source of variation, we find that investors become more risk averse after a negative wealth shock. These preferences consistently extrapolate to other investor decisions within LC.

JEL-codes: D12 D14 E21 G11 (search for similar items in EconPapers)
Date: 2010-06
Note: AP CF ME
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Citations: View citations in EconPapers (17)

Published as Daniel Paravisini & Veronica Rappoport & Enrichetta Ravina, 2017. "Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios," Management Science, vol 63(2), pages 279-297.

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Related works:
Working Paper: Risk aversion and wealth: evidence from person-to-person lending portfolios (2017)
Working Paper: Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios (2010)
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