The Cross-Section of Household Preferences

Abstract

This paper estimates the cross-sectional distribution of Epstein-Zin preferences using the wealth and risky portfolio shares of a large panel of Swedish households. We find modestly heterogeneous risk aversion (standard deviation 0.97, median 7.50) and a meaningfully heterogeneous and right-skewed time preference rate (TPR; standard deviation 7.31%, median 4.08%) and elasticity of intertemporal substitution (EIS; standard deviation 3.17, median 0.70). Risk aversion and the EIS are only very weakly negatively correlated. We estimate lower risk aversion for households with riskier labor income, and a higher TPR and lower EIS for households that enter our sample with low wealth.