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={Behavioral & Experimental Finance eJournal},
  year={2009}
}
  • Marc F. Bellemare, Zachary S. Brown
  • Published 2009
  • Economics
  • Behavioral & Experimental Finance eJournal
  • 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… CONTINUE READING
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