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Are risk‐averse agents more optimistic? A Bayesian estimation approach
Author(s) -
Ben Mansour Selima,
Jouini Elyès,
Marin JeanMichel,
Napp Clotilde,
Robert Christian
Publication year - 2008
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.1027
Subject(s) - unobservable , optimism , lottery , econometrics , pessimism , bayesian probability , risk aversion (psychology) , estimation , economics , statistics , expected utility hypothesis , mathematics , computer science , actuarial science , psychology , social psychology , philosophy , management , epistemology
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. Copyright © 2008 John Wiley & Sons, Ltd.