A Test of Risk Vulnerability in the Wider Population

Panel data from the German SOEP is used to test for risk vulnerability (RV) in the wider population. Two different survey responses are analysed: the response to the question about willingness-to-take risk in general and the chosen investment in a hypothetical lottery. A convenient indicator of background risk is the VDAX index, an established measure of volatility in the German stock market. This is used as an explanatory variable in conjunction with HDAX, the stock market index, which proxies wealth. The impacts of these measures on risk attitude are identifiable by exploiting the time dimension of the panel and matching survey months with corresponding observations from these time-varying factors. Both of the survey responses allow us to test for decreasing absolute risk aversion (DARA); in one case, we find strong evidence of DARA, while in the other, we do not. Both survey responses also allow us to test for RV, and in both cases we find strong evidence. In the case of the hypothetical lottery response, we are also able to estimate a “coefficient of risk vulnerability” (CRV). This is defined as the absolute amount by which absolute risk aversion rises in response to a doubling of background risk. We estimate CRV to be between 1.03 and 1.27

From representing views to representativeness of views: illustrating a new (Q2S) approach in the context of health care priority setting in nine European countries

Governments across Europe are required to make decisions about how best to allocate scarce health care resources. There are legitimate arguments for eliciting societal vales in relation to health care resource allocation given the roles of the general public as payers and potential patients. However, relatively little is known about the views of the general public on general principles which could guide these decisions. In this paper we present five societal viewpoints on principles for health care resources allocation and develop a new approach, Q2S, designed to investigate the extent to which these views are held across a range of European countries. An online survey was developed, based on a previously completed study Q methodology, and delivered between November 2009 and February 2010 across nine countries to 33,515 respondents. The largest proportion of our respondents (44%), were found to most associate themselves with an egalitarian perspective. Differences in views were more strongly associated with countries than with socio-demographic characteristics. These results provide information which could be useful for decision makers in understanding the pluralistic context in which they are making health care resource allocation decisions and how different groups in society may respond to such decisions

Tenure Choice, Mortgage Choice, and Lender Behaviour in the Housing Market of England and Wales

EThOS - Electronic Theses Online ServiceGBUnited Kingdo

Mortgage Choice as a Natural Field Experiment on Choice Under Risk

Microdata from the UK Survey of Mortgage Lenders is used to model borrowers' choices between variable and fixed rate mortgages. The data is treated as a large-scale "natural experiment" on risky choice, with the choice of a fixed rate corresponding to the "safe choice" in a more conventional experimental setting. The choice is assumed to depend partly on risk attitude, and partly on expectations of future movements in interest rates. Approximately 280,000 choices, made by borrowers between 1992 and 2001, appear in the sample. The ordered probit model is used for estimation, while taking account of a number of econometric issues including missing counterfactuals, selectivity, and endogeneity. Explanatory variables are divided into three groups: mortgage price variables; interest rate expectations; and borrower characteristics. A large number of strong effects are found, including: fixing is more likely when agents expect interest rates to increase; the presence of female borrowers increases the propensity to fix; older borrowers are less likely to fix; high-income borrowers are less likely to fix, particularly so if income is "self-certified"; those with higher loan-to-value ratios are less likely to fix. These findings amount to new insights in the modelling of choice under risk.Series: University of East Anglia Applied and Financial Economics Working Paper Seriesrisky choice, fixed and variable rate mortgages, counterfactuals, interest rate expectations; ordered probit.

Mortgage Choice as a Natural Field Experiment on Choice under Risk

Data on approximately 280,000 borrowers from the UK Survey of Mortgage Lenders are used to model choices between variable and fixed rate mortgages. The choice is assumed to depend on three factors: risk attitude, interest-rate expectations, and individual discount rate. The ordered probit model is used for estimation, while taking account of a number of econometric issues including missing counterfactuals, selectivity, and endogeneity. A large number of strong effects are found, including: higher income borrowers are less risk averse and have a lower discount rate, and risk aversion rises with the amount borrowed, providing evidence of increasing relative risk aversion

Gender and Gambling Preference

Gambling preferences are analysed using survey data from the wider population. Respondents were confronted with a hypothetical lottery question, in which they were asked to imagine having just won a large prize, and asked how much of this prize they would be willing to invest in a further gamble. We observe the majority of respondents avoiding the gamble altogether. We demonstrate that such behaviour cannot easily be explained by standard models of choice under risk, since it implies implausible degrees of risk aversion. We propose that the observed behaviour can instead be explained in terms of gambling aversion. Since the decision variable takes the form of the number of ``units'' of the prize that the respondent wishes to invest in the gamble, and since the decision is observed twice for some respondents, we adopt the panel version of the Zero-Inflated Poisson model as an econometric framework. We assume that individual characteristics affect both stages of the decision-making process. We are particularly interested in the effect of gender, and we find that males have a significantly higher probability of participating in the gamble, and are also (conditional on gambling) prepared to gamble significantly larger amounts

L’analisi dell’attitudine al rischio tra i membri della famiglia

Le determinanti dell'attitudine al rischio tra i membri della famiglia sono analizzate utilizzando i dati del German Socio-Economic Panel nel periodo 2004-2009. Al centro dell'analisi ci sono le risposte ripetute alla domanda contenuta nell’indagine sull’attitudine generale ad assumersi dei rischi. Le risposte a questa domanda sono fornite su una scala Likert 0-10. Noi rispettiamo sia l’ordinalità sia la struttura longitudinale (o panel) dei dati, stimando un modello probit per dati ordinabili ad effetti casuali. Dividiamo i membri della famiglia in tre tipologie: capifamiglia, coniugi e prole. Tra questi, troviamo che i coniugi sono i più avversi al rischio e i figli i meno avversi al rischio. Alla luce di questi risultati, stimiamo il modello separatamente per i tre gruppi e troviamo risultati diversi tra i tre. Ad esempio, il reddito familiare ha un effetto positivo (sull'assunzione di rischi) per i capifamiglia e i coniugi (particolarmente forte per i coniugi), ma nessun effetto sui figli. Alcuni effetti sono simili tra i tre gruppi; per esempio, l'avversione al rischio aumenta sempre con l'età. Nell'equazione dei figli, includiamo sia l’attitudine al rischio del capofamiglia sia quello del coniuge come variabili esplicative, e troviamo che entrambi hanno un effetto significativamente positivo sull’attitudine al rischio dei figli, il che indica che i bambini tendono ad ereditare l'attitudine al rischio dei loro genitori

Gender and Gambling Preference

Gambling preferences are analysed using survey data from the wider population. Respondents were confronted with a hypothetical lottery question, in which they were asked to imagine having just won a large prize, and asked how much of this prize they would be willing to invest in a further gamble. We observe the majority of respondents avoiding the gamble altogether. We demonstrate that such behaviour cannot easily be explained by standard models of choice under risk, since it implies implausible degrees of risk aversion. We propose that the observed behaviour can instead be explained in terms of gambling aversion. Since the decision variable takes the form of the number of “units” of the prize that the respondent wishes to invest in the gamble, and since the decision is observed twice for some respondents, we adopt the panel version of the Zero-Inflated Poisson model as an econometric framework. We assume that individual characteristics affect both stages of the decision-making process. We are particularly interested in the effect of gender, and we find that males have a significantly higher probability of participating in the gamble, and are also (conditional on gambling) prepared to gamble significantly larger amounts

The Analysis of Risk Attitude Amongst Family Members

The determinants of risk attitude amongst family members are explored using data from the German Socio-Economic Panel over the period 2004 to 2009. The focus of the analysis is the repeated responses to the survey question about general willingness to take risk. Responses to this question are provided on a 0-10 Likert scale. We respect both the ordinality and the panel structure of the data by estimating the random effects ordered probit model. We divide household members into thee types: heads, spouses and offspring. Of the three types, we find that spouses are the most risk averse, and offspring the least risk averse. In view of these findings, we estimate the model separately for the three groups and find different results between the three. For example, household income has a positive effect (on risk-taking) for heads and spouses (particularly strong for spouses), but no effect on offspring. Some effects are similar between the the three groups; for example, risk aversion always increases with age. In the offspring equation, we include both the head's and the spouse's risk attitude as explanatory variables, and find that both have a significantly positive effect on the offspring's risk-attitude, indicating that children tend to inherit the risk attitude of their guardians. We then focus on couples in the data set, and we apply the random effects bivariate ordered probit model to the analysis of the simultaneous determination of the male's and the female's risk attitude. In this model, the individual-specific effects for the male and the female are assumed to have a non-zero correlation, which is estimated to be +0.412. This significantly positive correlation is interpreted as a form of homophily: individuals tend to form partnerships with others having a similar risk attitude. The importance of respecting the ordinality of the data is confirmed when a straightforward (linear) seemingly unrelated model is applied to the same problem; this gives a correlation of only +0.27: a seriously downward-biased estimate of this key parameter