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Asset Integration and Attitudes to Risk: Theory and Evidence
Copenhagen Business School, Copenhagen, Denmark.
Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta, USA.
Department of Risk Management and Insurance, J. Mack Robinson College of Business, Georgia State University, Atlanta, USA.
Copenhagen Business School, Copenhagen, Denmark.
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2017 (English)Report (Other academic)
Abstract [en]

Measures of risk attitudes derived from experiments are often questioned because they are based on small stakes bets and do not account for the extent to which the decision-maker integrates the prizes of the experimental tasks with personal wealth. We exploit the existence of detailed information on individual wealth of experimental subjects in Denmark, and directly estimate risk attitudes and the degree of asset integration consistent with observed behavior. The behavior of the adult Danes in our experiment is consistent with partial asset integration: they behave as if some fraction of personal wealth is combined with experimental prizes in a utility function, and that this combination entails less than perfect substitution. Our subjects do not perfectly asset integrate. The implied risk attitudes from estimating these specifications imply risk premia and certainty equivalents that are a priori plausible under expected utility theory or rank dependent utility models. These are reassuring and constructive solutions to payoff calibration paradoxes. In addition, the rigorous, structural modeling of partial asset integration points to a rich array of neglected questions in risk management and policy evaluation in important field settings.

Place, publisher, year, edition, pages
Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University , 2017. no 2012-12, p. 89
Series
Experimental Economics Center Working Paper Series ; 2012-12
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:oru:diva-68870OAI: oai:DiVA.org:oru-68870DiVA, id: diva2:1247474
Available from: 2018-09-12 Created: 2018-09-12 Last updated: 2018-09-14Bibliographically approved

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Asset Integration and Attitudes to Risk

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Rutström, Elisabet

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf