An Analysis of Risk Preference Using Data on Japanese Rich Households

Abstract

This paper analyzes the household data of Japanese hig-income earners to estimate the effect of a change in asset level on the relative risk aversion (RRA) and a household portfolio choice. The analysis first estimated the coefficient of relative risk aversion of each respondent of survey questions. It second estimated the relationship between asset level and RRA and the one between asset level and the proportion of risky assets in the total household asset, using the bequest and gift as the instrumental variable of asset level. The main results are as follows. First, RRA decreases as an asset becomes greater. Second, the proportion of risky assets depends on RRA; however, it cannot be regarded as dependent on the asset level. Those two results imply that an increase in the asset size raises the proportion of risky asset through the decreasing RRA.