Learning about Stability of Risk Preferences
Partial identification through minimal assumptions grounded in economic theory robustly bridges fully structural and model-free methods.
In Short:
Partial identification through minimal assumptions grounded in economic theory robustly bridges fully structural and model-free methods.
Abstract
Classical theories posit that risk preferences are stable across decision contexts. Two branches of empirical literature assess this claim. Structural approaches examine within-person consistency of model-based estimates of risk aversion, while “model-free” approaches examine within-person correlations of risky choices. We elucidate the latent structure underlying the model-free approach. Using this structure, we develop a new approach to assessing preference stability that has stronger testable implications, and we partially identify features of stability and heterogeneity of risk preferences. Our study illustrates a general principle: partial identification through minimal assumptions grounded in economic theory robustly bridges fully structural and model-free methods.
About the author
Levon Barseghyan
professor, school of government and policy
Levon Barseghyan’s work, both theoretical and empirical, is aimed at uncovering mechanisms that shape economic behavior and how such behavior is affected by market structure, economic policies and political institutions.
Francesca Molinari
professor, school of government and policy
Francesca Molinari is a leading authority in econometric theory and applied econometrics. Her theoretical research focuses primarily on the study of identification problems, analyzing the limits of what can be learned from available data about causal relationships in economics and in the social sciences.