Asset Integration and Attitudes toward Risk: Theory and Evidence

Steffen Andersen; James C. Cox; Glenn W. Harrison; Morten I. Lau; E. Elisabet Rutström; Vjollca Sadiraj

doi:10.1162/rest_a_00719

Asset Integration and Attitudes toward Risk: Theory and Evidence

Steffen Andersen¹; James C. Cox²; Glenn W. Harrison³; Morten I. Lau⁴; E. Elisabet Rutström⁵; Vjollca Sadiraj²

¹ Copenhagen Business School · ² Georgia State University · ³ Georgia State University and University of Cape Town · ⁴ Copenhagen Business School and Durham Unversity Business School · ⁵ Örebro University and Stockholm School of Economics

The Review of Economics and Statistics 2018 open access

We provide evidence that choices over small-stakes bets are consistent with assumptions of some payoff calibration paradoxes. We then exploit the existence of detailed information on individual wealth of our experimental subjects in Denmark and directly estimate risk attitudes and the degree of asset integration. We discover that behavior is consistent with partial, rather than full, asset integration. The implied risk attitudes from estimating these specifications indicate risk premiums and certainty equivalents that are a priori plausible. This theory and evidence suggest one constructive solution to payoff calibration paradoxes.

DOI: 10.1162/rest_a_00719
Volume: 100 (5)
Pages: 816-830
Language: en
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