Journal of Financial and Quantitative Analysis Vol. 54 No. 5 2019

Risk Aversion in a Dynamic Asset Allocation Experiment

Isabelle Brocas¹; Juan D. Carrillo^1,2; Aleksandar Giga^1,3; Fernando Zapatero¹

¹ University of Southern California · ² Centre for Economic Policy Research · ³ California Southern University

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.

DOI

10.1017/s0022109018001151

Volume

54

Issue

5

Pages

2209-2232

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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