Risk Aversion Measures

Households’ reported willingness to take financial risk is compured to the riskiness of their po~olios, measured as risky assets to wealth. Overall, their ~or~olio alio~ations are reliable indicators of attitudes toward risk, demonstrating an understanding of their relative level of risk taking. Multivariate regression analysis using multiply imputed data from the 1989 Survey of Consumer Finances indicates that households generally exhibit decreasing relative risk aversion. Further, investment in risky assets is significantly related to socioeconomic factors, attitude toward risk taking, desire to leave an estate, and expectations about the adequacy of Social Security and pension income.