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Author: Levon Barseghyan Publisher: ISBN: Category : Languages : en Pages : 65
Book Description
We survey the literature on estimating risk preferences using field data. We concentrate our attention on studies in which risk preferences are the focal object and estimating their structure is the core enterprise. We review a number of models of risk preferences -- including both expected utility (EU) theory and non-EU models -- that have been estimated using field data, and we highlight issues related to identification and estimation of such models using field data. We then survey the literature, giving separate treatment to research that uses individual-level data (e.g., property insurance data) and research that uses aggregate data (e.g., betting market data). We conclude by discussing directions for future research.
Author: Levon Barseghyan Publisher: ISBN: Category : Languages : en Pages : 65
Book Description
We survey the literature on estimating risk preferences using field data. We concentrate our attention on studies in which risk preferences are the focal object and estimating their structure is the core enterprise. We review a number of models of risk preferences -- including both expected utility (EU) theory and non-EU models -- that have been estimated using field data, and we highlight issues related to identification and estimation of such models using field data. We then survey the literature, giving separate treatment to research that uses individual-level data (e.g., property insurance data) and research that uses aggregate data (e.g., betting market data). We conclude by discussing directions for future research.
Author: Glenn W. Harrison Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
We estimate individual risk attitudes using controlled experiments in the field in Denmark. These risk preferences are elicited by means of field experiments involving real monetary rewards. The experiments were carried out across Denmark using a representative sample of 253 people between 19 and 75 years of age. Risk attitudes are estimated for various individuals differentiated by socio-demographic characteristics such as income and age. Our results indicate that the average Dane is risk averse, and that risk neutrality is an inappropriate assumption to apply. We also find that risk attitudes vary significantly with respect to several important socio-demographic variables. We also report support for constancy of relative risk aversion for the Danish population as a whole, and for all the identifiable subgroups of the population considered here. These findings have important implications for the characterization of risk attitudes in policy applications, theoretical modeling, and experimental economics.
Author: Alma Cohen Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
We estimate the distribution of risk preferences using a large data set of deductible choices in auto insurance contracts. To do so, we develop a structural econometric model of adverse selection that allows for unobserved heterogeneity in both risk (claim rate) and risk aversion. We use data on realized claims to estimate the distribution of claim rates and data on deductible and premium choices to estimate the distribution of risk aversion and how it correlates with risk. We find large heterogeneity in risk attitudes: while the majority of individuals are almost risk neutral with respect to lotteries of 100 dollar magnitude, an important fraction of the individuals exhibit significant risk aversion even with respect to such relatively small bets. The estimates imply that women are more risk averse than men, that risk aversion exhibits a U-shape with respect to age, and that most proxies for income and wealth are positively associated with absolute risk aversion. Finally, unobserved heterogeneity in risk aversion is more important than that of risk, and risk and risk aversion are positively correlated.
Author: Travis J. Lybbert Publisher: ISBN: Category : Languages : en Pages : 17
Book Description
Estimating risk preferences is tricky because controlling for confounding factors is difficult. Omitting or imperfectly controlling for these factors can attribute too much observable behaviour to risk aversion and bias estimated preferences. Agents often modify risky decisions in response to dynamic wealth or asset thresholds, where such thresholds exist. Ignoring this dynamic risk response introduces an attribution bias in static estimates of risk aversion. We demonstrate this pitfall using a simple model and a Monte Carlo simulation to explore the implications of this problem for empirical estimation. While an approach that jointly estimates risk preferences and wealth dynamics may remedy the problem by extracting dynamic risk responses from observed behaviour, it is likely to be challenging to implement in broader empirical settings for reasons we discuss.
Author: Raj Chetty Publisher: ISBN: Category : Labor supply Languages : en Pages : 28
Book Description
This paper develops a method of estimating the coefficient of relative risk aversion (g) from data on labor supply. The main result is that existing estimates of labor supply elasticities place a tight bound on g, without any assumptions beyond those of expected utility theory. It is shown that the curvature of the utility function is directly related to the ratio of the income elasticity of labor supply to the wage elasticity, holding fixed the degree of complementarity between consumption and leisure. The degree of complementarity can in turn be inferred from data on consumption choices when employment is stochastic. Using a large set of existing estimates of wage and income elasticities, I find a mean estimate of g = 1. I also give a calibration argument showing that a positive uncompensated wage elasticity, as found in most studies of labor supply, implies g
Author: Sergio H. Lence Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
A thought experiment is designed to investigate whether the structure of risk aversion (i.e., the changes in absolute or relative risk aversion associated with changes in wealth) can be estimated with reasonable precision from agricultural production data. Findings strongly suggest that typical production data are unlikely to allow identification of the structure of risk aversion. A flexible-utility parameterization is found to slightly worsen technology parameter estimates. Results also indicate that even under a restricted-utility specification, utility parameter estimates are biased. Further, their quality is much worse when shocks are not large or samples are small.
Author: Atanu Saha Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Risk preferences and technology are jointly estimated in the nonlinear mean-standard deviation framework for a competitive firm model under price risk. A utility function is proposed that nests various risk preference structures and risk neutrality as empirically refutable special cases. The empirical application using firm-level data finds evidence of decreasing absolute risk aversion, differences in the nature of relative risk aversion by firm size, and little support for the widely used linear mean-variance framework. The estimation results also show that ignoring risk and risk preferences can substantially overestimate output supply and input demand elasticities.
Author: Levon Barseghyan
Author: Levon Barseghyan
Author: Alma Cohen
Author: Glenn W. Harrison
Author: Alma Cohen
Author: Travis J. Lybbert
Author: Raj Chetty
Author: Sergio H. Lence
Author: Atanu Saha
Author: Andy Garlick
Author: Steven P. Hubbard