Individual Risk Aversion Through the Life Cycle Public Deposited

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  • March 20, 2019
  • Parada Contzen, Marcela
    • Affiliation: College of Arts and Sciences, Department of Economics
  • This dissertation studies the evolution of individual risk aversion through the life cycle using observed measures of individual risk aversion coming from survey responses. I develop a dynamic model of individual lifetime behavior and jointly estimate a set of correlated dynamic equations for observed risk aversion, wealth-related decisions (employment, occupation, investment, and savings), and other characteristics that an individual may value independently of wealth (family and health). I consider how to incorporate observed measures of individual risk aversion into a dynamic empirical model of individual behavior and how to reconcile the use of these observed measures with the economic theory of individual behavior over time. In an empirical model that allows risk preferences (calculated from survey responses) to be an endogenous determinant of observed behaviors, I find that there is correlation, through unobserved characteristics between risk aversion and wealth-related behaviors, as well as causal effect of risk preferences on these outcomes. The joint estimation of observed risk aversion and behaviors reduces the bias on the estimated marginal effects of endogenous variables that impact wealth-related decisions and better approximate the distribution of individual unobserved heterogeneity. The estimated model is used to analyze investment policies associated with wealth accumulation in the Chilean private retirement system. In this system, each dependent worker must have an individual account where every period the worker contributes ten percent of her income for accumulating retirement wealth. I evaluate alternative time-varying default investment schemes showing that, over seven years, slightly riskier investment strategies may increase individual asset accumulation by eight percent or more. Increases in mandatory contribution rates by three and five percent generate statistically significant increases in asset accumulation of 10 and 16 percent, respectively. Finally, when simulating women with children who are currently not employed to hold a part-time job, wealth accumulation increases by 10 percent over a seven year time frame.
Date of publication
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Rights statement
  • In Copyright
  • Tauchen, Helen
  • Guilkey, David
  • Peter, Klara
  • Gilleskie, Donna B.
  • Cooley Fruehwirth, Jane
  • Doctor of Philosophy
Degree granting institution
  • University of North Carolina at Chapel Hill Graduate School
Graduation year
  • 2016

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