NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Daniel Paravisini, Veronica Rappoport, Enrichetta Ravina

NBER Working Paper No. 16063
Issued in June 2010
NBER Program(s):   AP   CF   ME

We estimate risk aversion from the actual financial decisions of 2,168 investors in Lending Club (LC), a person-to-person lending platform. We develop a methodology that allows us to estimate risk aversion parameters from each portfolio choice. Since the same individual makes repeated investments, we are able to construct a panel of risk aversion parameters that we use to disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specific risk aversion to changes in wealth. In the cross section, we find that wealthier investors are more risk averse. Using changes in house prices as a source of variation, we find that investors become more risk averse after a negative wealth shock. These preferences consistently extrapolate to other investor decisions within LC.

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This paper was revised on December 5, 2011

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Document Object Identifier (DOI): 10.3386/w16063

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