On the (Mis)Use of Wealth as a Proxy for Risk Aversion

@article{Bellemare2009OnT,
  title={On the (Mis)Use of Wealth as a Proxy for Risk Aversion},
  author={Marc F. Bellemare and Zachary S. Brown},
  journal={ERN: Other Microeconomics: Decision-Making under Risk \& Uncertainty (Topic)},
  year={2009}
}
  • Marc F. Bellemare, Z. Brown
  • Published 20 March 2009
  • Economics
  • ERN: Other Microeconomics: Decision-Making under Risk & Uncertainty (Topic)
Tests of risk sharing in the contracting literature often rely on wealth as a proxy for risk aversion. The intuition behind these tests is that since contract choice is monotonic in the coefficients of risk aversion, which are themselves assumed monotonic in wealth, the effect of a change in wealth on contract choice is clearly identified. We show that tests of risk sharing relying on wealth as a proxy for risk aversion are identified only insofar as the econometrician is willing to assume that… 
Are Risk Attitudes Fixed Factors or Fleeting Feelings?
We investigate the stability of measured risk attitudes over time, using a 13-year longitudinal sample of individuals in the National Longitudinal Survey of Youth 1979. We find that an individual’s
Empirical Challenges for Risk Preferences and Production
The importance of risk preferences in agricultural production has long been identified as an important and preeminent issue of policy relevance. Recent developments in the study of production risk
The (Im)possibility of Reverse Share Tenancy
Under the assumption that the landlord is risk-neutral and the tenant is risk-averse, sharecropping is second-best in that it trades off risk sharing and incentives. Many, however, have reported
The Structural Estimation of Principal-Agent Models by Least Squares: Evidence from Land Tenancy in Madagascar
We develop a method to structurally estimate principal-agent models by ordinary least squares (OLS). We set up a general principal-agent model which explicitly incorporates the wealth levels of each
Four essays on risk preferences, entrepreneurship, earnings, occupations, and gender
Chapter 2This chapter examines the extent to which gender differences in risk aversion explain why women have a lower entrepreneurship rate, earn less, and work fewer hours than men. Data from the
Measuring Risk Attitude and Relation to Marketing Behavior
Researchers employ various measures of risk attitudes to investigate their relation to market behavior with mixed results. We find that a higher-order global risk attitude construct, developed using
The Dynamics of Norms and Convention under Random Matching
Focusing on 2x2 coordination games, the concept of stochastic stability as developed by Young (1993, 1998) is extended to take account of state dependent error and sample sizes. Both, error and
Risk Preferences, Contracts and Technology Adoption by Broiler Farmers in China
This study expands on existing research on farmers’ risk preferences and technology adoption, with novel analysis of the relationship between risk preferences, production contract participation, and
State-Dependent Stochastic Stability and the Non-Existence of Conventions
Arising from criticism in the literature and focusing on 2x2 coordination games, the concept of stochastic stability is extended to take account of state dependent error and sample sizes. Both, error
...
1
2
3
...

References

SHOWING 1-10 OF 35 REFERENCES
Relative Risk Aversion: What Do We Know?
The relative risk aversion measure that represents the risk preferences of a decision maker depends on the outcome variable that is used as the argument of the utility function, and on the way that
Incentives and performance in the presence of wealth effects and endogenous risk
Another Type of Risk Aversion
Abstract : A formulation is made incorporating the concept of 'size-of-risk' aversion into the process of selecting a utility function. This concept extends and complements normative observation of
Wealth and Executive Compensation
Using new data on the wealth of Swedish CEOs, I show that higher wealth CEOs receive stronger incentives. Since high wealth (excluding own-firm holdings) implies low absolute risk aversion, this is
ON THE THEORY OF RISK AVERSION
the existing theory by establishing the economic significance of the partial relative risk aversion function. Let u(t) be a utility function for wealth. The functions A(t) = -u"(t)/u'(t) and R(t)
Risk Aversion and Incentive Effects
A menu of paired lottery choices is structured so that the crossover point to the high-risk lottery can be used to infer the degree of risk aversion. With normal laboratory payoffs of several
Risk Sharing and Information in Village Economies
Arrangements for achieving efficient risk-sharing vary depending on the information available to agents in the economy. The usual Euler equation restricts efficient allocations in an economy which
Endogenous Matching and the Empirical Determinants of Contract Form
Empirical work on contracts typically regresses contract choice on observed principal and agent characteristics. If (i) some of these characteristics are unobserved or partially observed, and (ii)
Is Risk Aversion Really Correlated with Wealth? How Estimated Probabilities Introduce Spurious Correlation
Economists attribute many common behaviors to risk aversion and frequently focus on how wealth moderates risk preferences. This paper highlights a problem associated with empirical tests of the
Endogenous Matching and the Empirical Determinants of Contract Form
Empirical work on contracts typically regresses contract choice on observed principal and agent characteristics. If (i) some of these characteristics are unobserved or partially observed and (ii)
...
1
2
3
4
...