Enrichetta Ravina

Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios

Coauthor(s): Daniel Paravisini, Daniel Paravisini, Veronica Rappoport, Veronica Rappoport.


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We estimate risk aversion from investors' portfolio choices on a person-to-person lending platform. Our method obtains a risk aversion parameter from each investment and generates a panel that we use to disentangle the elasticity of risk aversion to wealth from heterogeneity in risk attitudes across investors and changes in beliefs. We find an average income-based Relative Risk Aversion of 2.85, a median of 1.62, and substantial heterogeneity and skewness across investors. Risk aversion increases after a negative housing wealth shock, consistent with Decreasing Relative Risk Aversion. We show that ignoring heterogeneity and changes in beliefs would lead to biased estimates.

Source: Working paper
Exact Citation:
Paravisini, Daniel, Veronica Rappoport, and Enrichetta Ravina. "Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios." Working paper, Columbia University GSB, January 2013.
Date: 1 2013