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Joseph G. Eisenhauer
''Approximation bias in estimating risk aversion''
( 2003, Vol. 4 No.38 )
The asymmetric approximation originally employed by Pratt (1964) to construct reduced-form measures of risk aversion s a downward bias when used for empirical estimation. Calculations based on recent survey data indicate that estimates from a symmetric approximation are generally three times larger than their asymmetric counterparts, a finding that may help to explain the equity premium puzzle.
JEL: D8 - Information, Knowledge, and Uncertainty: General
Manuscript Received : Nov 14 2003 Manuscript Accepted : Dec 19 2003

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