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Asset Integration and Attitudes Toward Risk: Theory and Evidence

Andersen, Steffen; Cox, James C.; Harrison, Glenn W.; Lau, Morten I.; Rutström, E.; Sadiraj, V.

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Authors

Steffen Andersen

James C. Cox

Glenn W. Harrison

E. Rutström

V. Sadiraj



Abstract

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 premia and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.

Citation

Andersen, S., Cox, J. C., Harrison, G. W., Lau, M. I., Rutström, E., & Sadiraj, V. (2018). Asset Integration and Attitudes Toward Risk: Theory and Evidence. The Review of Economics and Statistics, 100(5), 816-830. https://doi.org/10.1162/rest_a_00719

Journal Article Type Article
Acceptance Date Oct 2, 2017
Online Publication Date Jan 12, 2018
Publication Date Dec 19, 2018
Deposit Date Oct 3, 2017
Publicly Available Date Mar 28, 2024
Journal Review of Economics and Statistics
Print ISSN 0034-6535
Electronic ISSN 1530-9142
Publisher Massachusetts Institute of Technology Press
Peer Reviewed Peer Reviewed
Volume 100
Issue 5
Pages 816-830
DOI https://doi.org/10.1162/rest_a_00719
Public URL https://durham-repository.worktribe.com/output/1343737

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Copyright Statement
© 2018 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.






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