RISK AVERSION AND PORTFOLIO CHOICE*

We derive from a sample of US households the distribution of the relative risk aversion im-plicit in their portfolio choice. Our estimate minimizes in a static framework the wealth loss in-curred with sub-optimal portfolio allocations; this way we also obtain a lower bound of the wealth loss. Our preferred measure accounts for real wealth and constraints in portfolio compo-sition. Most of our estimates take plausible values. We find a substantial heterogeneity in risk aversion, and find a significant relationship with several socio-demographic characteristics. The lower bound of wealth loss is small and inversely related to risk aversion