Are Risk-Averse Agents more Optimistic? A Bayesian Estimation Approach

Jouini, Elyès; Ben Mansour, Selima; Napp, Clotilde; Marin, Jean-Michel; Robert, Christian P.

Jouini, Elyès; Ben Mansour, Selima; Napp, Clotilde; Marin, Jean-Michel; Robert, Christian P. (2008), Are Risk-Averse Agents more Optimistic? A Bayesian Estimation Approach, Journal of Applied Econometrics, 23, 6, p. 843-860. http://dx.doi.org/10.1002/jae.1027

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Type

Article accepté pour publication ou publié

External document link

https://halshs.archives-ouvertes.fr/halshs-00163678

Date

2008

Journal name

Journal of Applied Econometrics

Volume

Number

Publisher

Wiley

Pages

843-860

Abstract (EN)

Our aim is to analyze the link between optimism and risk aversion in a subjective expected utility setting and to estimate the average level of optimism when weighted by risk tolerance. Its estimation leads to a non-trivial statistical problem. We start from a large lottery survey (1536 individuals). We assume that individuals have true unobservable characteristics. We adopt a Bayesian approach and use a hybrid MCMC approximation method to numerically estimate the distributions of the unobservable characteristics. We find that individuals are on average pessimistic and that pessimism and risk tolerance are positively correlated.

Subjects / Keywords

MCMC Scheme; Bayesian Estimation; Risk Aversion; Pessimism; Risk Tolerance; Importance Sampling; Consensus Belief

JEL

D53 - Financial Markets
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
C11 - Bayesian Analysis: General