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Risk Aversion in a Dynamic Asset Allocation Experiment

  • Isabelle Brocas, Juan D. Carrillo, Aleksandar Giga and Fernando Zapatero


We conduct a controlled laboratory experiment in the spirit of Merton (1971), in which subjects dynamically choose their portfolio allocation between a risk-free and risky asset. Using the optimal allocation of an investor with hyperbolic absolute risk aversion (HARA) utility, we fit the experimental choices to characterize the risk profile of our participants. Despite substantial heterogeneity, decreasing absolute risk aversion and increasing relative risk aversion are the predominant types. We also find some evidence of increased risk taking after a gain. Finally, the session level risk attitudes show a different profile than the individual descriptions of risk attitudes.


Corresponding author

*Brocas,, University of Southern California and Center for Economic Policy Research (CEPR); Carrillo,, University of Southern California and CEPR; Giga,, University of Southern California; and Zapatero (corresponding author),, University of Southern California Marshall School of Business.


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We thank Elena Asparouhova (the referee), Jennifer Conrad (the editor), Glenn Harrison, Alex Imas, and the members of the Los Angeles Behavioral Economics Laboratory (LABEL); participants (and especially discussants) of the 2015 Western Finance Association meetings (Thomas Gilbert); the 2014 CEAR/MRIC Workshop at Georgia State University; the 2015 Economic Science Association meeting, and the 2014 seminar at USC for their helpful comments and suggestions. We thank the LUSK Center for Real Estate for their financial support.



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Risk Aversion in a Dynamic Asset Allocation Experiment

  • Isabelle Brocas, Juan D. Carrillo, Aleksandar Giga and Fernando Zapatero


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