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dc.contributor.authorGUISO, Luigi
dc.contributor.authorPAIELLA, Monica
dc.date.accessioned2007-11-02T11:23:35Z
dc.date.available2007-11-02T11:23:35Z
dc.date.issued2007
dc.identifier.issn1725-6704
dc.identifier.urihttps://hdl.handle.net/1814/7501
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 consumers.endowments and attributes and to measures of background risk and liquidity constraints. We .nd 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 .nd 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 risksen
dc.format.mimetypeapplication/pdf
dc.language.isoenen
dc.publisherEuropean University Institute
dc.relation.ispartofseriesEUI ECOen
dc.relation.ispartofseries2007/47en
dc.rightsinfo:eu-repo/semantics/openAccess
dc.subjectD1en
dc.subjectD8en
dc.subjectRisk aversionen
dc.subjectBackground risken
dc.subjectPrudenceen
dc.subjectHeterogeneous preferencesen
dc.titleRisk Aversion, Wealth, and Background Risken
dc.typeWorking Paperen
dc.neeo.contributorGUISO|Luigi|aut|EUI70005
dc.neeo.contributorPAIELLA|Monica|aut|
dc.neeo.contributorPAIELLA|Monica|aut|
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