Publication detail

People Are Less Risk-Averse than Economists Think

Author(s): Ali Elminejad ,
prof. PhDr. Tomáš Havránek Ph.D.,
doc. PhDr. Zuzana Havránková Ph.D.,
Type: IES Working Papers
Year: 2022
Number: 14
Published in: IES Working Papers 14/2022
Publishing place: Prague
Keywords: Euler equation, risk aversion, Epstein-Zin preferences, meta-analysis, publication bias, Bayesian model averaging
JEL codes: C83, D81, D90
Suggested Citation: Elminejad A., Havranek T., Irsova Z. (2022): "People Are Less Risk-Averse than Economists Think" IES Working Papers 14/2022. IES FSV. Charles University.
Abstract: We collect 1,021 estimates from 92 studies that use the consumption Euler equation to measure relative risk aversion and that disentangle it from intertemporal substitution. We show that calibrations of risk aversion are typically larger than estimates thereof. Moreover, reported estimates are typically larger than the underlying risk aversion because of publica- tion bias. After correction for the bias, the literature suggests a mean risk aversion of 1 in economics and 2–7 in finance contexts. The reported estimates are systematically driven by the characteristics of data (frequency, dimension, country, stockholding) and utility (func- tional form, treatment of durables). To obtain these results we use nonlinear techniques to correct for publication bias and Bayesian model averaging techniques to account for model uncertainty.
Downloadable: wp_2022_14_elminejad, havranek, irsova


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