Rich and daring: testing for wealth effects on risk-taking behaviour using data from a quasi-experiment on roads with speed-enforcement devices

• Grant number: 12/11700-0
• Support Opportunities: Regular Research Grants
• Start date: September 01, 2012
• End date: February 28, 2014
• Field of knowledge: Applied Social Sciences - Economics - Economic Theory
• Principal Investigator: Mauro Rodrigues Jr
• Grantee: Mauro Rodrigues Jr
• Host Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil
• City of the host institution: São Paulo
• Associated researchers: Sergio Almeida de Sousa

Abstract

Assumptions about how risk preferences change over levels of wealth and income are key to a wide variety of economic and financial models. For example, models of how saving behaviour respond to income uncertainty may lead to different consumption and portfolio selection plans depending on whether one's utility function is CARA or CRRA (i.e., if one's absolute and relative risk aversion changes as wealth increases). Yet the empirical evidence on how risk aversion is affected by wealth is mixed andalmost all of it comes from either data on portfolio composition, or laboratory experiment that involves hypothetical or small stakes. We propose to use data from drivers on roads with speed-enforcement devices to assess the effects of income and wealth on attitudes towards risk. We design an observational study that will collect data on proxies of risk-taking behaviour, wealth, and observable demographic variables for a large sample of individuals. We then test which form of relative and absolute risk aversion fits our data better. (AU)