The Quarterly Journal of Economics · 1997 · 2.5K citations · 35 references
Social SciencesEconomicsInsuranceBehavioral EconomicsEconometricsExperimental EconomicsRisk AversionRisk BehaviorRisk PreferencesRisk ToleranceTime PreferencesUtility TheoryBehavioral HeterogeneityHeterogeneityHeterogeneous Risk AversionIntertemporal Risk PreferencesRisk Aversion EstimationRisky BehaviorSurvey InterviewingTime-preference Modeling
The study derives preference parameters from survey responses to hypothetical scenarios based on economic theory. The analysis reveals substantial heterogeneity in risk tolerance, time preference, and intertemporal substitution, with risk tolerance uncorrelated with elasticity of intertemporal substitution and positively associated with risky behaviors, though it accounts for only a modest share of behavioral variation.
This paper reports measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These measures are based on survey responses to hypothetical situations constructed using an economic theorist's concept of the underlying parameters. The individual measures of preference parameters display heterogeneity. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Measured risk tolerance is positively related to risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. These relationships are both statistically and quantitatively significant, although measured risk tolerance explains only a small fraction of the variation of the studied behaviors.
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