Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios

58 Pages Posted: 7 Jun 2010 Last revised: 17 Nov 2010

See all articles by Daniel Paravisini

Daniel Paravisini

London School of Economics & Political Science (LSE)

Veronica Rappoport

London School of Economics & Political Science (LSE)

Enrichetta Ravina

Kellogg School of Management; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2010

Abstract

We estimate risk aversion from the actual financial decisions of 2,168 investors in Lending Club (LC), a person-to-person lending platform. We develop a methodology that allows us to estimate risk aversion parameters from each portfolio choice. Since the same individual makes repeated investments, we are able to construct a panel of risk aversion parameters that we use to disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specific risk aversion to changes in wealth. In the cross section, we find that wealthier investors are more risk averse. Using changes in house prices as a source of variation, we find that investors become more risk averse after a negative wealth shock. These preferences consistently extrapolate to other investor decisions within LC.

Suggested Citation

Paravisini, Daniel and Rappoport, Veronica and Ravina, Enrichetta, Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios (June 2010). NBER Working Paper No. w16063. Available at SSRN: https://ssrn.com/abstract=1620780

Daniel Paravisini (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Veronica Rappoport

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Enrichetta Ravina

Kellogg School of Management ( email )

Evanston, IL 60208
United States
8474676872 (Phone)

HOME PAGE: http://https://sites.google.com/view/eravina/home

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

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