A Study On The Impact Of Incremental Income On Personal Risk Attitude

Since 2013,we have witnessed the bull market and also bear market in Chinese stock market during the past few years.There were many subject caught the timing,entered stock market and got the chance to earn revenue from the bull market.Within that period,we also witnessed a phenomenon that some people even invest in stock market with using leverage3.It is sure that using leverage will result in the subject to have a higher revenue,however,meanwhile a higher level of leverage also means a higher level of risk.Many people used greater leverage4 and there exists a puzzle behind this phenomenon,that is,will subject's risk attitudes change when his income changes? By observing the phenomenon,we would find that some investors start to using leverage once he had tasted the sweetness of invest in stock market.There shows the tendency that some subjects become less risk averse once his income increase.Thus in this case,to investigate the relation between risk attitudes and income is meaningful.Actually,the relation between income and risk attitudes is one of the most important element when we analyze and try to build model for some economic problems with uncertainty.On the one hand,the market price of the risky asset depends on what the utility function form of the individual investor is and the income distribution among the investors to some extent.If the risk tolerance is concave,then the inequality of income distribution can partly explain the mystery of the risk premium.On the other hand,the relationship between risk attitudes and income is necessary for solving the problem of intertemporal investment in constructing individual consumption and saving equations under uncertain conditions.In the consumer portfolio selection model,the first step is to set the utility function form;the core is to determine the risk attitude on income function.On the assumption of personal risk attitude,the traditional economic model is often used in the assumption that personal has constant absolute risk aversion(CARA)and constant relative risk aversion(CRRA).This paper draws on the well-known experimental method of measuring personal risk preference,carries out survey on randomly selected samples to obtain data,and draws on a model which has been used to measure the relationship between risk attitudes and income.The result is that personal absolute risk aversion is a decreasing function of income,and the relative risk aversion is an increasing function of income,thus rejects the two kinds of risk attitudes: constant absolute risk aversion(CARA)and constant relative risk aversion(CRRA),which are assumed as basic hypothesis of the standard economic model.The innovation of this paper is that besides the simple multiple regression analysis,the relationship between personal income and personal risk attitudes is also studied by using propensity score matching method.Propensity score matching is a statistical method used to process data from observational studies.In the observational study,for a variety of reasons,the data bias and confounding variables are more,the propensity score matching method is to reduce the impact of these deviations and confounding variables in order to compare the experimental group and the control group for a more reasonable comparison.Except from this,even though the research result is consistent with existing result,but the data used is different.The data used in this paper is gathered from questionnaires and this paper tries to explain the relation between income and personal risk attitude from the economic perspective.