From Aggregate Betting Data to Individual Risk Preferences

Chiappori, Pierre-André, Salanié, Bernard, Salanié, François and Gandhi, Amit (2018) From Aggregate Betting Data to Individual Risk Preferences. Econometrica. (In Press)

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Official URL: http://tse-fr.eu/pub/33050

Abstract

We show that even in the absence of data on individual decisions, the distribution of individual attitudes towards risk can be identified from the aggregate conditions that characterize equilibrium on markets for risky assets. Taking parimutuel horse races as a textbook model of contingent markets, we allow for heterogeneous bettors with very general risk preferences, including non-expected utility. Under a standard singlecrossing condition on preferences, we identify the distribution of preferences among the population of bettors and we derive testable implications. We estimate the model on data from US races. Specifications based on expected utility fit the data very poorly. Our results stress the crucial importance of nonlinear probability weighting. They also suggest that several dimensions of heterogeneity may be at work.

Item Type: Article
Language: English
Date: 2018
Refereed: Yes
Uncontrolled Keywords: Identification, revealed preferences, attitudes towards risk
JEL codes: C5 - Econometric Modeling
D8 - Information, Knowledge, and Uncertainty
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 07 Nov 2018 08:57
Last Modified: 07 Nov 2018 08:57
OAI ID: oai:tse-fr.eu:33050
URI: http://publications.ut-capitole.fr/id/eprint/26382

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