Risk preferences and the effect of a subsistence level
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2024-07-10
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en
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Due to changes in Dutch pension legislation, pension funds are required to elicit risk preferences of participant age cohorts at least every five years. Given the pillars of the Dutch pension system, it brings up the question on how subsistence needs are viewed by individuals. The assumption of CRRA utility suggests that individual subsistence requirements do not affect risk preferences, but we expect that it might. We use an adjusted version of the choice sequence risk elicitation method to test the assumption and identify behaviour contradicting CRRA utility on an individual level. Although we find a deviation from CRRA utility, our findings suggest that it is not due to individuals taking their subsistence needs into consideration during income gambles. These results can have multiple implications for pension funds, including important policy consequences for individual investment strategies.
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Faculteit der Managementwetenschappen