ASSET INTEGRATION AND ATTITUDES TOWARD RISK: THEORY AND EVIDENCE

We provide evidence that choices over small-stakes bets are consistent with assumptions of some payoff calibration paradoxes. We then exploit the existence of detailed information on individual wealth of our experimental subjects in Denmark and directly estimate risk attitudes and the degree of asse...

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Bibliographic Details
Published in:The review of economics and statistics 2018-12, Vol.100 (5), p.816-830
Main Authors: Andersen, Steffen, Cox, James C., Harrison, Glenn W., Lau, Morten I., Rutström, E. Elisabet, Sadiraj, Vjollca
Format: Article
Language:English
Subjects:
Asset management
Assets
Attitudes
Premiums
Research subjects
Risk aversion
Risk premiums
Wealth
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Summary:We provide evidence that choices over small-stakes bets are consistent with assumptions of some payoff calibration paradoxes. We then exploit the existence of detailed information on individual wealth of our experimental subjects in Denmark and directly estimate risk attitudes and the degree of asset integration. We discover that behavior is consistent with partial, rather than full, asset integration. The implied risk attitudes from estimating these specifications indicate risk premiums and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.
ISSN:0034-6535
1530-9142
1530-9142
DOI:10.1162/rest_a_00719