Imputing Risk Tolerance from Survey Responses / Miles S. Kimball, Claudia R. Sahm, Matthew D. Shapiro.

Format:

Book

Author/Creator:

Kimball, Miles S.

Contributor:

National Bureau of Economic Research.

Sahm, Claudia R.

Shapiro, Matthew D.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13337.

NBER working paper series no. w13337

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

Economic theory assigns a central role to risk preferences. This paper develops a measure of relative risk tolerance using responses to hypothetical income gambles in the Health and Retirement Study. In contrast to most survey measures that produce an ordinal metric, this paper shows how to construct a cardinal proxy for the risk tolerance of each survey respondent. The paper also shows how to account for measurement error in estimating this proxy and how to obtain consistent regression estimates despite the measurement error. The risk tolerance proxy is shown to explain differences in asset allocation across households.

Notes:

Print version record

August 2007.