Kimball, Miles S. <br/><br/>
Imputing Risk Tolerance from Survey Responses / 
Miles S. Kimball, Claudia R. Sahm, Matthew D. Shapiro. 
 - Cambridge, Mass.  National Bureau of Economic Research  2007. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w13337 .
 - Working Paper Series (National Bureau of Economic Research)  no. w13337. .
<br/><br/> August 2007. 
<br/><br/> 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. 
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