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526
2002b. “Forecasting Risk Attitudes: An Experimental Study of Actual and Forecast
 Department of Economics, Virginia Tech
"... We develop and evaluate a simple gamblechoice task to measure attitudes toward risk, and apply this measure to examine differences in risk attitudes of male and female university students. In addition, we ask whether a person's sex is read as a signal of risk preference. Subjects choose which ..."
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Cited by 96 (4 self)
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We develop and evaluate a simple gamblechoice task to measure attitudes toward risk, and apply this measure to examine differences in risk attitudes of male and female university students. In addition, we ask whether a person's sex is read as a signal of risk preference. Subjects choose which of five 50/50 gambles they wish to play. The gambles include one sure thing; the remaining four increase (linearly) in expected payoff and risk. Each subject also must guess which of the five gambles each of the other subjects chose. The experiment is conducted under three different frames: an abstract frame where the two highestpayoff gambles carry the possibility of losses, an abstract frame with no losses, and an investment frame that mirrors the payoff structure of the former. We find that women are significantly more risk averse than men in all three settings, and predictions of both women and men tend to confirm this difference. While average guesses reflect the average difference in choices, only 27 percent of guesses are accurate.
Financial Literacy and Stock Market Participation
 Journal of Financial Economics
, 2011
"... iN ..."
Death to the LogLinearized Consumption Euler Equation! (And Very Poor Health to the SecondOrder Approximation)
, 1997
"... This paper shows that standard empirical methods for estimating loglinearized consumption Euler equations cannot successfully uncover structural parameters like the coe#cient of relative risk aversion from a dataset of simulated consumers behaving exactly according to the standard model. Furthermor ..."
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Cited by 83 (4 self)
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This paper shows that standard empirical methods for estimating loglinearized consumption Euler equations cannot successfully uncover structural parameters like the coe#cient of relative risk aversion from a dataset of simulated consumers behaving exactly according to the standard model. Furthermore, consumption growth for the simulated consumers is very highly statistically related to predictable income growth  and thus standard `excess sensitivity' tests would reject the hypothesis that consumers are behaving according to the standard model. Results are not much better for the secondorder approximation to the Euler equation. The paper concludes that empirical estimation of consumption Euler equations should be abandoned, and discusses some alternative empirical strategies that are not subject to the problems of Euler equation estimation. Keywords: Euler equation, uncertainty, consumption, excess sensitivity JEL Classification Codes: C6, D91, E21 + Department of Economics, John...
Discounting an uncertain future
, 2002
"... The objective of this paper is to determine the socially optimal discount rate for public investment projects that entail costs and benefits in the very long run. We suppose that there is an exogenous process for the growth of consumption per capita, which is stochastic. We first evaluate the determ ..."
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Cited by 80 (8 self)
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The objective of this paper is to determine the socially optimal discount rate for public investment projects that entail costs and benefits in the very long run. We suppose that there is an exogenous process for the growth of consumption per capita, which is stochastic. We first evaluate the determinants of the discount rate for a specific horizon when the representative agent has a recursive utility. We then explore the influence of the time horizon in the expected utility model. Under various conditions on preferences, as positive prudence, decreasing relative risk aversion or decreasing absolute risk aversion, we prove that (1) the fact that growth is uncertain reduces the efficient discount rate at any horizon, and that (2) this discount rate should be smaller for more distant futures. We characterize
Education and Health: Evaluating Theories and Evidence
, 2006
"... This paper is available online at the National Poverty Center Working Paper Series index at: ..."
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Cited by 79 (6 self)
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This paper is available online at the National Poverty Center Working Paper Series index at:
The Market Price of Risk and the Equity Premium: A Legacy of the Great Depression
 Journal of Monetary Economics
, 2008
"... Friedman and Schwartz hypothesized that the Great Depression created exaggerated fears of economic instability. We quantify their idea by using a robustness calculation to shatter a representative consumer’s initial confidence in the parameters of a twostate Markov chain that truly governs consumpt ..."
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Cited by 70 (5 self)
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Friedman and Schwartz hypothesized that the Great Depression created exaggerated fears of economic instability. We quantify their idea by using a robustness calculation to shatter a representative consumer’s initial confidence in the parameters of a twostate Markov chain that truly governs consumption growth. The assumption that the consumption data come from the true Markov chain and the consumer’s use of Bayes ’ law cause that initial pessimism to wear off. But so long as it persists, the representative consumer’s pessimism contributes a volatile multiplicative component to the stochastic discount factor that would be measured by a rational expectation econometrician. We study how this component affects asset prices. We find settings of our parameters that make pessimism wear off slowly enough to allow our model to generate substantial values for the market price of risk and the equity premium. Key words: Robustness, learning, asset pricing. 1
Portfolios of the Rich
, 2000
"... Recent research has shown that `rich' households save at much higher rates than others (see Carroll (2000);D ynan, Skinner, and Zeldes (1996); Gentry and Hubbard (1998); Huggett (1996); Quadrini (1999)). This paper documents another large di#erence between the rich and the rest of the populatio ..."
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Cited by 58 (0 self)
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Recent research has shown that `rich' households save at much higher rates than others (see Carroll (2000);D ynan, Skinner, and Zeldes (1996); Gentry and Hubbard (1998); Huggett (1996); Quadrini (1999)). This paper documents another large di#erence between the rich and the rest of the population: portfolios of the rich are heavily skewed toward risky assets, particularly investments in their own privately held businesses. The paper explores three possible explanations of these facts. First, perhaps there is exogenous variation in risk tolerance, so that highly risk tolerant households engage in highrisk, highreturn activities, and the risklovers who are lucky constitute the rich. A second possibility is that capital market imperfections alaGentry and Hubbard (1998) and Quadrini (1999) require entrepreneurial activities to be largely selffinanced, and these same imperfections imply that entreprenurial investment will yield high average returns. The final possibility is that wealth ...
A New Method of Estimating Risk Aversion
 THE AMERICAN ECONOMIC REVIEW XCVI
"... This paper develops a new method of estimating risk aversion using data on labor supply behavior. In particular, I show that existing evidence on labor supply behavior places a tight upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk a ..."
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Cited by 52 (3 self)
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This paper develops a new method of estimating risk aversion using data on labor supply behavior. In particular, I show that existing evidence on labor supply behavior places a tight upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk aversion ( ) in terms of (1) the ratio of the income elasticity of labor supply to the wage elasticity and (2) the degree of complementarity between consumption and labor. I bound the degree of complementarity using data on consumption choices when labor supply varies randomly across states. Using labor supply elasticity estimates from thirtythree studies, I find a mean estimate of 1: I then show that generating> 2 would require that wage increases cause sharper reductions in labor supply than estimated in any of the studies.
ReferenceDependent Risk Attitudes
 Department of Economics, University of California at Berkeley
"... We use Kőszegi and Rabin’s (2006) model of referencedependent utility, and an extension of it that applies to decisions with delayed consequences, to study preferences over monetary risk. Because our theory equates the reference point with recent probabilistic beliefs about outcomes, it predicts sp ..."
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Cited by 50 (1 self)
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We use Kőszegi and Rabin’s (2006) model of referencedependent utility, and an extension of it that applies to decisions with delayed consequences, to study preferences over monetary risk. Because our theory equates the reference point with recent probabilistic beliefs about outcomes, it predicts specific ways in which the environment influences attitudes toward modestscale risk. It replicates “classical” prospect theory—including the prediction of distaste for insuring losses—when exposure to risk is a surprise, but implies firstorder risk aversion when a risk, and the possibility of insuring it, are anticipated. A prior expectation to take on risk decreases aversion to both the anticipated and additional risk. For largescale risk, the model allows for standard “consumption utility ” to dominate referencedependent “gainloss utility, ” generating nearly identical risk aversion across situations. (JEL D81) Daniel Kahneman and Amos Tversky’s (1979) prospect theory, and the literature building from it, provide theories of risk attitudes based on a