Individual vs. Aggregate Preferences: The Case of a Small Fish in a Big Pond

• 成果类型: Article
• 署名作者: Blackburn, Douglas W.; Ukhov, Andrey D.
• 署名单位: Fordham University; Cornell University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1120.1608
• 发表日期: 2013
• 页码: 470-484
• 关键词: Risk aversion; risk seeking; Investor sentiment; Risk premium

摘要

We study the relationship between the risk preferences of individuals and the risk preferences of the aggregate economy. To emphasize the vast differences that can occur between individual and market preferences brought about through aggregation, we assume an economy consisting entirely of risk seekers. We show that such individuals can lead to an aggregate economy that is risk averse. The converse is also true. An aggregate economy that exhibits risk aversion does not imply an economy of individual risk averters. An economy demanding a risk premium can be formed from individuals who do not demand such compensation. Understanding the relationship between the preferences of individuals and the preferences of the aggregate economy is crucial for understanding the connection between the behavioral finance literature, which focuses on individual preferences, and the asset-pricing literature, which focuses on aggregate prices. We discuss empirical implications of these results.