search query: @author Guiso, L. / total: 8
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| Author: | Guiso, L. Paiella, M. |
| Title: | Risk aversion, wealth, and background risk |
| Journal: | Journal of the European Economic Association
2008 : DEC, VOL. 6:6, p. 1109-1150 |
| Index terms: | consumers risk aversion wealth securities surveys Italy |
| Freeterms: | households willing-to-pay |
| Language: | eng |
| Abstract: | Based on household survey data, this paper develops a direct measure of absolute risk aversion (henceforth as: r-avn.) based on the maximum price which a consumer is willing to pay for a risky security. The measure is related to consumer's endowments and attributes and to measures of background risk and liquidity constraints. It is found that r-avn. is a decreasing function of the endowment, thus rejecting constant absolute r-avn. (CARA) preferences. The elasticity of r-avn. to consumption is estimated at about 0.7, below the unitary value predicted by constant relative r-avn. (CRRA) utility. In addition, households' attributes are found to be of little help in predicting their degree of r-avn., which is characterized by massive unexplained heterogeneity. It is shown that the r-avn. is affectd by consumer's environment etc. |
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