Eliciting risk preferences and elasticity of substitution
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Eliciting risk preferences and elasticity of substitution. / Burgaard, Johan; Steffensen, Mogens.
I: Decision Analysis, Bind 17, Nr. 4, 2020, s. 314-329.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - Eliciting risk preferences and elasticity of substitution
AU - Burgaard, Johan
AU - Steffensen, Mogens
PY - 2020
Y1 - 2020
N2 - 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. Funding: The authors gratefully thank the company Ipsos for funding this survey.
AB - 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. Funding: The authors gratefully thank the company Ipsos for funding this survey.
KW - Certainty equivalents
KW - Constant equivalents
KW - Nonrecursive separation
KW - Questionnaire
KW - Subjective discounting
UR - http://www.scopus.com/inward/record.url?scp=85098561495&partnerID=8YFLogxK
U2 - 10.1287/DECA.2020.0415
DO - 10.1287/DECA.2020.0415
M3 - Journal article
AN - SCOPUS:85098561495
VL - 17
SP - 314
EP - 329
JO - Decision Analysis
JF - Decision Analysis
SN - 1545-8490
IS - 4
ER -
ID: 255112664