Asset Integration and Attitudes toward Risk: Theory and Evidence

Steffen Andersen, James C. Cox, Glenn W. Harrison, Morten Lau, E. Elisabet Rutström, Vjollca Sadiraj

Research output: Contribution to journalJournal articleResearchpeer-review

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 premiums and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.
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 premiums and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.
LanguageEnglish
JournalReview of Economics and Statistics
Volume100
Issue number5
Pages816-830
Number of pages15
ISSN0034-6535
DOIs
StatePublished - 2018

Cite this

Andersen, S., Cox, J. C., Harrison, G. W., Lau, M., Rutström, E. E., & Sadiraj, V. (2018). Asset Integration and Attitudes toward Risk: Theory and Evidence. Review of Economics and Statistics, 100(5), 816-830. DOI: 10.1162/rest_a_00719
Andersen, Steffen ; Cox, James C. ; Harrison, Glenn W. ; Lau, Morten ; Rutström, E. Elisabet ; Sadiraj, Vjollca. / Asset Integration and Attitudes toward Risk : Theory and Evidence. In: Review of Economics and Statistics. 2018 ; Vol. 100, No. 5. pp. 816-830
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Andersen, S, Cox, JC, Harrison, GW, Lau, M, Rutström, EE & Sadiraj, V 2018, 'Asset Integration and Attitudes toward Risk: Theory and Evidence' Review of Economics and Statistics, vol. 100, no. 5, pp. 816-830. DOI: 10.1162/rest_a_00719

Asset Integration and Attitudes toward Risk : Theory and Evidence. / Andersen, Steffen; Cox, James C.; Harrison, Glenn W.; Lau, Morten; Rutström, E. Elisabet; Sadiraj, Vjollca.

In: Review of Economics and Statistics, Vol. 100, No. 5, 2018, p. 816-830.

Research output: Contribution to journalJournal articleResearchpeer-review

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Andersen S, Cox JC, Harrison GW, Lau M, Rutström EE, Sadiraj V. Asset Integration and Attitudes toward Risk: Theory and Evidence. Review of Economics and Statistics. 2018;100(5):816-830. Available from, DOI: 10.1162/rest_a_00719