Endogenous Risk Attitudes in Family Portfolio Choice

Elie Appelbaum

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a theoretical model of decision-making under risk in which the agent is a union of individuals with heterogeneous attitudes toward risk. The risk attitude governing the joint decision is endogenously determined as a compromise between individuals' innate preferences, with deviations generating costs. The chosen risk attitude affects the optimal portfolio and, therefore, the risk premium associated with exposure to uncertainty. The analysis shows that the optimal compromise equates the marginal increase in the risk premium with the marginal reduction in deviation costs. Because risk attitudes and portfolio choices are jointly determined, parameter changes affect both sides of this condition, generating feedback effects that may lead to ambiguous or non-monotone comparative statics. The framework provides a tractable approach to modelling endogenous risk attitudes in collective decision-making under uncertainty.

Keywords: household portfolio choice; heterogeneous risk preferences; Endogenous risk attitudes; collective decision making; preference aggregation. (search for similar items in EconPapers)
JEL-codes: C18 C44 D80 D81 I10 (search for similar items in EconPapers)
Date: 2026-04
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