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Asset Integration and Attitudes toward Risk: Theory and Evidence

Author

Listed:
  • Steffen Andersen

    (Copenhagen Business School)

  • James C. Cox

    (Georgia State University)

  • Glenn W. Harrison

    (Georgia State University and University of Cape Town)

  • Morten I. Lau

    (Copenhagen Business School and Durham Unversity Business School)

  • E. Elisabet Rutström

    (Örebro University and Stockholm School of Economics)

  • Vjollca Sadiraj

    (Georgia State University)

Abstract

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.

Suggested Citation

  • Steffen Andersen & James C. Cox & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström & Vjollca Sadiraj, 2018. "Asset Integration and Attitudes toward Risk: Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 816-830, December.
    • Handle: RePEc:tpr:restat:v:100:y:2018:i:5:p:816-830
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    Citations

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    Cited by:

    1. Stein T. Holden & Dag Einar Sommervoll & Mesfin Tilahun, 2022. "Mental Zooming as Variable Asset Integration in Inter-Temporal Choice," International Journal of Applied Behavioral Economics (IJABE), IGI Global, vol. 11(1), pages 1-21, January.
    2. Alekseev, Aleksandr & Alm, James & Sadiraj, Vjollca & Sjoquist, David L., 2021. "Experiments on the fly," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 288-305.
    3. Marc A. Ragin & Benjamin L. Collier & Johannes G. Jaspersen, 2021. "The effect of information disclosure on demand for high‐load insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(1), pages 161-193, March.
    4. repec:oup:ooecxx:v:1:y:2022:i::p:1-12. is not listed on IDEAS
    5. Glenn W. Harrison, 2024. "Risk preferences and risk perceptions in insurance experiments: some methodological challenges," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 49(1), pages 127-161, March.
    6. Holden, Stein T. & Tilahun, Mesfin & Sommervoll, Dag Einar, 2020. "Magnitude Effects and Utility Curvature in Inter-temporal Choice," CLTS Working Papers 8/20, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    7. Han Bleichrodt & Jason N. Doctor & Yu Gao & Chen Li & Daniella Meeker & Peter P. Wakker, 2019. "Resolving Rabin’s paradox," Journal of Risk and Uncertainty, Springer, vol. 59(3), pages 239-260, December.
    8. Daniel John Zizzo & Melanie Parravano & Ryota Nakamura & Suzanna Forwood & Marc Suhrcke, 2021. "The impact of taxation and signposting on diet: an online field study with breakfast cereals and soft drinks," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1294-1324, December.
    9. Balcombe, Kelvin & Fraser, Iain, 2024. "A Note on an Alternative Approach to Experimental Design of Lottery Prospects," MPRA Paper 119743, University Library of Munich, Germany.
    10. Glenn W. Harrison & Jia Min Ng, 2019. "Behavioral insurance and economic theory: A literature review," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 133-182, July.
    11. Chen Sun & Jan Potters, 2022. "Magnitude effect in intertemporal allocation tasks," Experimental Economics, Springer;Economic Science Association, vol. 25(2), pages 593-623, April.
    12. Siebert, Jan, 2020. "Are the poor more impatient than the rich? Experimental evidence on the effect of (lab) wealth on intertemporal preferences," Ruhr Economic Papers 845, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    13. Holden, Stein T. & Tilahun, Mesfin & Sommervoll, Dag Einar, 2022. "Is diminishing impatience in time-dated risky prospects explained by probability weighting?," CLTS Working Papers 3/22, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    14. Aj A Bostian & Christoph Heinzel, 2020. "Robustness of Inferences in Risk and Time Experiments to Lifecycle Asset Integration," Post-Print hal-03358620, HAL.
    15. Ferro, Giuseppe M. & Kovalenko, Tatyana & Sornette, Didier, 2021. "Quantum decision theory augments rank-dependent expected utility and Cumulative Prospect Theory," Journal of Economic Psychology, Elsevier, vol. 86(C).

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