Citation

Schechter L. J. Risk Uncertain. 2007; 35(1): 67-76.

Affiliation

University of Wisconsin, Madison, WI 53706 USA

Copyright

(Copyright © 2007, Holtzbrinck Springer Nature Publishing Group)

DOI

10.1007/s11166-007-9017-6

PMID

unavailable

Abstract

Rabin (Econometrica 68(5):1281-1292, 2000) argues that, under expected-utility, observed risk aversion over modest stakes implies extremely high risk aversion over large stakes. Cox and Sadiraj (Games Econom. Behav. 56(1):45-60, 2006) have replied that this is a problem of expected-utility of wealth, but that expected-utility of income does not share that problem. We combine experimental data on moderate-scale risky choices with survey data on income to estimate coefficients of relative risk aversion using expected-utility of consumption. Assuming individuals cannot save implies an average coefficient of relative risk aversion of 1.92. Assuming they can decide between consuming today and saving for the future, a realistic assumption, implies quadruple-digit coefficients. This gives empirical evidence for narrow bracketing.

Language: en