Discussion Paper

No. 2013-33 | June 25, 2013
On the Source of Risk Aversion in Indonesia Using Micro Data 2007

Abstract

Many conventional economic analyses assume that risk preference is taken as given and do not give much scrutiny on it. However, empirical studies show that risk preference is not random: shocks and predetermined characteristics can determine risk preference. This study tried to see if these potential determinants together affect risk aversion in Indonesia using 2007 micro data. The author found that there is limited evidence that shocks and predetermined characteristics can affect risk preference. There is a preliminary indication that risk preference was not only driven by the individual’s wealth and demographic factors (that can be easily controlled), but also by the individual’s time preference.

Data Set

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The data set for this article can be found at: http://hdl.handle.net/1902.1/21707

JEL Classification

O12 D81

Cite As

Muhammad Ryan Sanjaya (2013). On the Source of Risk Aversion in Indonesia Using Micro Data 2007. Economics Discussion Papers, No 2013-33, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-33

Assessment



Comments and Questions


Anonymous - Referee Report 1
July 29, 2013 - 15:26

See attached file


Muhammad Ryan Sanjaya - reply
July 30, 2013 - 09:36

I would like to send gratitude for the referee report and will revise the draft manuscript accordingly. With respect to the general comment I'd like to give it a reply:

It is true that the topic on the source of risk aversion has been widely studied in both cross ...[more]

... and within countries. Nonetheless, there almost no study—with an exception of the Cameron & Shah paper—that studies risk aversion for the case of Indonesia. Indonesia is unique in the sense that the population is very diverse and is a part of emerging countries, a non-typical chosen country for risk-aversion study that usually chose advanced economies with relatively homogenous population. Moreover, this study is to generalize the finding from Cameron & Shah paper (that relates risk aversion with natural disaster) and adds some arguments based on recent studies that relate risk aversion with physical characteristics. Therefore, while I acknowledge the limited contribution of the paper in general, but I argue that the contribution is significant for studies on risk aversion in developing countries especially Indonesia. This study is also giving early hints on developing policy for disaster-based insurance as specified in part 3.4 (in complement with Cameron & Shah paper).


Anonymous - Referee Report 2
August 05, 2013 - 09:10

See attached file


Muhammad Ryan Sanjaya - reply
August 06, 2013 - 05:48

Thank you for your comments and I will revise the draft manuscript accordingly.


Anonymous - Referee Report 3
August 12, 2013 - 09:43

See attached file


Muhammad Ryan Sanjaya - reply
August 13, 2013 - 04:21

Thank you for your comments and I will revise the draft manuscript accordingly