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zbMATH Open
Article . 2020
Data sources: zbMATH Open
Decision Analysis
Article . 2020 . Peer-reviewed
Data sources: Crossref
DBLP
Article . 2020
Data sources: DBLP
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Eliciting Risk Preferences and Elasticity of Substitution

Eliciting risk preferences and elasticity of substitution
Authors: Johan Burgaard; Mogens Steffensen;

Eliciting Risk Preferences and Elasticity of Substitution

Abstract

Risk aversion and elasticity of intertemporal substitution (EIS) are separated via the celebrated recursive utility building on certainty equivalents of indirect utility. Based on an alternative separation method, we formulate a questionnaire for simultaneous and consistent estimation of risk aversion, subjective discount rate, and EIS. From a representative group of 1,153 respondents, we estimate parameters for these preferences and their variability within the population. Risk aversion and the subjective discount rate are found to be in the orders of 2 and 0, respectively, not diverging far away from results from other studies. Our estimate of EIS in the order of 10 is larger than often reported. Background variables like age and income have little predictive power for the three estimates. Only gender has a significant influence on risk aversion in the usually perceived direction that females are more risk-averse than males. Using individual estimates of preference parameters, we find covariance between preferences toward risk and EIS. We present the background reasoning on objectives, the questionnaire, a statistical analysis of the results, and economic interpretations of these, including relations to the literature.

Country
Denmark
Keywords

Questionnaire, questionnaire, Nonrecursive separation, Constant equivalents, Certainty equivalents, constant equivalents, Decision theory, Individual preferences, Subjective discounting, certainty equivalents, subjective discounting, nonrecursive separation, Utility theory

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
15
Top 10%
Average
Top 10%
Green