Abstract
Kenneth Arrow posed the hypotheses that investors reveal decreasing absolute risk aversion (DARA) and increasing relative risk aversion (IRRA). It is very difficult to empirically test these two hypotheses since one needs to analyze an investor's investment decisions at various points in his/her economic life cycle as the investor's wealth varies. An experimental study is conducted to test these two hypotheses when the subject's wealth varies depending on his/her investment performance. The experiment involves an actual money gain or loss which is indexed to the individual's investment performance. It is found that DARA is indeed strongly supported, but IRRA is rejected.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
