Habit persistence reduces risk aversion

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<title>Habit persistence reduces risk aversion</title>
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<abstract displayLabel="Summary">How does habit formation affect the dynamic demand for insurance and risky assets? We examine a dynamic portfolio-saving choice problem for two structure of preferences. In the first model, the consurner faces an exogenous path of mínimumlevels of subsistence over time. In the second rnodel, these levels are subject t  habit persistence, i.e. they are increasing in past consumption. We show that adding habit persistence to the initial model substantially reduces the aversion to risk. Theintuition is that the positive correlation between current portfolio returns and future levels of subsistence helps time-diversifying risks. This result goes against the widesprea idea that habit persistence can resolve the equity premium puzzle.</abstract>
<note type="statement of responsibility">Christian Gollier</note>
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<topic>Gerencia de riesgos</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080550936">
<topic>Formación</topic>
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<topic>Consumidores</topic>
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<title>Geneva papers on risk and insurance : issues and practice</title>
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<publisher>Geneva : The Geneva Association, 1976-</publisher>
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<identifier type="issn">1018-5895</identifier>
<identifier type="local">MAP20077100215</identifier>
<part>
<text>01/04/2021 Volumen 46 Número 2 - abril 2021 , p. 214-222</text>
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