Work

Risk Aversion in a Dynamic Asset Allocation Experiment

Year: 2018

Type: article

Abstract: We conduct a controlled laboratory experiment in the spirit of Merton (1971), in which subjects dynamically choose their portfolio allocation between a risk-free and risky asset. Using the optimal allocation of an investor with hyperbolic absolute risk aversion (HARA) utility, we fit the experimental choices to characterize the risk profile of our participants. Despite substantial heterogeneity, decreasing absolute risk aversion and increasing relative risk aversion are the predominant types. We also find some evidence of increased risk taking after a gain. Finally, the session level risk attitudes show a different profile than the individual descriptions of risk attitudes.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109018001151

Authors: Isabelle Brocas, Juan D. Carrillo, Aleksandar Giga, Fernando Zapatero

Institutions: University of Southern California, Centre for Economic Policy Research

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W298587997

FWCI: 1.66

Cites: 56

Cited by: 30

Related to: 10