The Cross-Section of Household Preferences
Working Paper 28788
DOI 10.3386/w28788
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This paper estimates the cross-sectional distribution of Epstein-Zin preferences using the wealth and risky portfolio shares of a large panel of Swedish households. We find modestly heterogeneous risk aversion (a standard deviation of 0.97 with a median of 7.50) and a meaningfully heterogeneous and right-skewed time preference rate (standard deviation 7.31% with a median of 4.08%) and elasticity of intertemporal substitution (standard deviation 3.17 with a median of 0.70). Risk aversion and the EIS are only very weakly negatively correlated. We estimate lower risk aversion for households with riskier labor income, and a higher TPR and lower EIS for households who enter our sample with low wealth.