Enrichetta Ravina

Habit Formation and Keeping Up with the Joneses: Evidence from Micro Data

This paper provides evidence of habit persistence in household consumption choices. I find that the strength of external habit, captured by the fraction of the consumption of the reference group that enters the utility function, is 0.290, and the strength of internal habit, represented by household past consumption, is 0.503. The results are robust to controlling for various measures of economic activity, tests for the presence of aggregate shocks, liquidity constraints, precautionary saving motives, and learning. Aggregation of the Euler equations as a weighted average of individual marginal rates of substitution accounts for heterogeneity and market incompleteness and preserves the results.

Risk aversion and wealth: evidence from person-to-person lending portfolios

We estimate risk aversion from the actual financial decisions of 2,168 investors in Lending Club (LC), a person-to-person lending platform. We develop a methodology that allows us to estimate risk aversion parameters from each portfolio choice. Since the same individual makes repeated investments, we are able to construct a panel of risk aversion parameters that we use to disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specific risk aversion to changes in wealth. In the cross section, we find that wealthier investors are more risk averse. Using changes in house prices as a source of variation, we find that investors become more risk averse after a negative wealth shock. These preferences consistently extrapolate to other investor decisions within LC.

Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios

We estimate risk aversion from investors’ financial decisions in a person-to-person lending platform. We develop a method that obtains a risk-aversion parameter from each portfolio choice. Since the same individuals invest repeatedly, we construct a panel data set that we use to disentangle heterogeneity in attitudes toward risk across investors, from the elasticity of risk aversion to changes in wealth. We find that wealthier investors are more risk averse in the cross section and that investors become more risk averse after a negative housing wealth shock. Thus, investors exhibit preferences consistent with decreasing relative risk aversion and habit formation.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2015.2317 . This paper was accepted by Amit Seru, finance .

Who is internationally diversified? Evidence from the 401(k) plans of 296 firms

Drawing on a novel database of the 401(k) plans of 296 firms, we examine the international equity allocations of 3.8 million individuals over the 2005–2011 period. We find enormous cross-individual variation, ranging from zero to more than 75%, and strong cohort effects, with younger cohorts investing more internationally than older ones and each cohort investing more internationally over time. Access to financial advice, lower fees, and more international fund choices are associated with higher international allocations, suggesting a role for plan design and policy. Education, financial literacy, and the fraction of foreign-born population in the ZIP code also have positive effects on international diversification, consistent with explanations based on familiarity bias and information barriers.