Academy of Financial Services
It is not an easy task to determine how risk averse a household is when members of the household have different levels of risk aversion (Zhang, 2017)¹. Similarly, it is unclear how risk perceptions of members of a household collectively determine the household-level risk perception. It’s argued that the risk aversion of the person with higher risk aversion in a household should be generally employed as the input into construction of an investment policy statement for a household. However, there exists few research studies which provides emperical guidance by examining the relationship between household-level risk perception and a household’s portfolio choice. This current research intends to fill this research gap.  In her paper, Zhang showed that a household has a decreasing relative risk aversion when two household members have different relative risk aversions.
Author(s): Xianwu Zhang, Charlene Kalenkoski