Abstract
Next to expectations, preferences play an important part in explaining individual investment decision making. In contrast with the case of expectations, most financial models do not presuppose homogeneity with respect to preferences, but leave room for variation between individuals. In this article we employ the social filter theory to model the concept of utility. The investor group on which we focus consists of a sample drawn from the members of the Dutch Central Union of Investment Study Clubs. By means of verbal choice behavior we operationalize and determine empirically the utility function of wealth as a function of club-specific characteristics, and we analyze the implications for the corresponding relative risk aversion.
We express our gratitude to Jelle Koolstra, who created the dataset with the help of the Dutch Central Union of Investment Study Clubs (NCVB). Programming support by Rob Flik is gratefully acknowledged. We like to thank Gerrit Antonides and Winfried Hallerbach for stimulating discussions on the subject. Responsability for remaining errors is that of the author.
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© 1991 Springer-Verlag Berlin · Heidelberg
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Van Der Sar, N.L. (1991). Utility of Wealth and Relative Risk Aversion: Operationalization and Estimation. In: Spronk, J., Matarazzo, B. (eds) Modelling for Financial Decisions. Studies in Financial Modelling. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-76761-6_15
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DOI: https://doi.org/10.1007/978-3-642-76761-6_15
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