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Updated: Apr 19, 2026

Measuring the Subjective Value of Risky and Ambiguous Options using Experimental Economics and Functional MRI Methods
Published on: September 19, 2012
How Much Does Risk Tolerance Change?
1Claudia R. Sahm is an Economist at the Federal Reserve Board, Washington, DC 20551.
Abstract:
Stability of preferences is central to how economists study behavior. This paper uses panel data on hypothetical gambles over lifetime income in the Health and Retirement Study to quantify changes in risk tolerance over time and differences across individuals. Maximum-likelihood estimation of a correlated random effects model utilizes information from 12,000 respondents in the 1992-2002 HRS. The results are consistent with constant relative risk aversion and career selection based on preferences. While risk tolerance changes with age and macroeconomic conditions, persistent differences across individuals account for over 70% of the systematic variation.
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