HKS Affiliated Authors


The Behavior of Savings and Asset Prices When Preferences and Beliefs are Heterogeneous. Richard Zeckhauser, June 27, 2011, Paper. "Movements in asset prices are a major risk confronting individuals. This paper establishes new asset pricing results when agents differ in risk preference, time preference and/or expectations. It shows that risk tolerance is a critical concept driving savings decisions, consumption allocations, prices and return volatilities. Surprisingly, due to the equilibrium risk sharing, the precautionary savings motive in the aggregate can vastly exceed that of even the most prudent actual agent in the..." Link