Article

From Aggregate Betting Data to Individual Risk Preferences

Pierre-André Chiappori, Bernard Salanié, François Salanié, and Amit Gandhi

Abstract

We show that even in the absence of data on individual decisions, the distribution of individual attitudes towards risk can be identified from the aggregate conditions that characterize equilibrium on markets for risky assets. Taking parimutuel horse races as a textbook model of contingent markets, we allow for heterogeneous bettors with very general risk preferences, including non-expected utility. Under a standard singlecrossing condition on preferences, we identify the distribution of preferences among the population of bettors and we derive testable implications. We estimate the model on data from US races. Specifications based on expected utility fit the data very poorly. Our results stress the crucial importance of nonlinear probability weighting. They also suggest that several dimensions of heterogeneity may be at work.

Keywords

Identification; revealed preferences; attitudes towards risk;

JEL codes

  • C5: Econometric Modeling
  • D8: Information, Knowledge, and Uncertainty

Replaces

Pierre-André Chiappori, Amit Gandhi, Bernard Salanié, and François Salanié, From Aggregate Betting Data to Individual Risk Preferences, TSE Working Paper, n. 13-453, October 2012.

Reference

Pierre-André Chiappori, Bernard Salanié, François Salanié, and Amit Gandhi, From Aggregate Betting Data to Individual Risk Preferences, Econometrica, 2018, forthcoming.

See also

Published in

Econometrica, 2018, forthcoming