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dc.contributor.authorGUISO, Luigi
dc.contributor.authorPAIELLA, Monica
dc.date.accessioned2011-04-19T12:47:52Z
dc.date.available2011-04-19T12:47:52Z
dc.date.issued2008
dc.identifier.citationJournal of the European Economic Association, 2008, 6, 6, 1109-1150
dc.identifier.issn1542-4766
dc.identifier.urihttps://hdl.handle.net/1814/16489
dc.description.abstractWe use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay for a risky security. We relate this measure to consumer's endowments and attributes and to measures of background risk and liquidity constraints. We find that risk aversion is a decreasing function of the endowment - thus rejecting CARA preferences. We estimate the elasticity of risk aversion to consumption at about 0.7, below the unitary value predicted by CRRA utility. We also find that households' attributes are of little help in predicting their degree of risk aversion, which is characterized by massive unexplained heterogeneity. We show that the consumer's environment affects risk aversion. Individuals who are more likely to face income uncertainty or to become liquidity constrained exhibit a higher degree of absolute risk aversion, consistent with recent theories of attitudes toward risk in the presence of uninsurable risks.
dc.language.isoen
dc.publisherM I T Press
dc.titleRisk Aversion, Wealth, and Background Risk
dc.typeArticle
dc.neeo.contributorGUISO|Luigi|aut|EUI70005
dc.neeo.contributorPAIELLA|Monica|aut|
dc.identifier.volume6
dc.identifier.startpage1109
dc.identifier.endpage1150
eui.subscribe.skiptrue
dc.identifier.issue6


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