We estimate risk aversion from investors' financial decisions in a person-toperson 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 housingwealth shock. Thus, investors exhibit preferences consistent with decreasing relative risk aversion and habit formation. ? 2017 INFORMS.

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1 February 2017

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Management Science 63(2) , pp.279-297, 2017

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DOI: 10.1287/mnsc.2015.2317

http://pubsonline.informs.org/journal/mnsc

This Journal article is published under the centre's Trade programme.