TY  - JOUR
AU  - Kimball,Miles S.
AU  - Sahm,Claudia R.
AU  - Shapiro,Matthew D.
TI  - Imputing Risk Tolerance from Survey Responses
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13337
PY  - 2007
Y2  - August 2007
UR  - http://www.nber.org/papers/w13337
L1  - http://www.nber.org/papers/w13337.pdf
N1  - Author contact info:
Miles S. Kimball
Department of Economics
University of Michigan
Ann Arbor, MI  48109-1220
Tel: 734/764-2375
Fax: 734/764-2769
E-Mail: mkimball@umich.edu

Claudia R. Sahm
Federal Reserve Board
21st and C Street NW
Washington DC 20551
Tel: 571-490-2223
E-Mail: Claudia.R.Sahm@frb.gov

Matthew D. Shapiro
Department of Economics
University of Michigan
611 Tappan St
Ann Arbor, MI 48109-1220
Tel: 734/764-5419
Fax: 734 764-2769
E-Mail: shapiro@umich.edu
AB  - Economic theory assigns a central role to risk preferences. This paper develops a measure of relative risk tolerance using responses to hypothetical income gambles in the Health and Retirement Study. In contrast to most survey measures that produce an ordinal metric, this paper shows how to construct a cardinal proxy for the risk tolerance of each survey respondent. The paper also shows how to account for measurement error in estimating this proxy and how to obtain consistent regression estimates despite the measurement error. The risk tolerance proxy is shown to explain differences in asset allocation across households.
ER  -