This paper reports measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These measures are based on survey responses to hypothetical situations constructed using an economic theorist's concept of the underlying parameters. The individual measures of preference parameters display heterogeneity. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Measured risk tolerance is positively related to risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. These relationships are both statistically and quantitatively significant, although measured risk tolerance explains only a small fraction of the variation of the studied behaviors.

No abstract

In the popular press and much of the business community, it continues to be an article of faith that "consumer confidence" has an important role-both prognostic and causal-in macroeconomics. On the other hand, the stance of the rather limited academic literature on confidence is far more ambiguous. The judgments range from the conclusion that confidence measures have an important role both in prediction and in understanding the causes of business cycles, to the view that they contain important information but have little causal role, to the verdict that they have no value even in forecasting.There are, broadly speaking, two contrasting approaches to the role of confidence in macroeconomics. The first, which we will refer to as the "animal spirits" view, posits autonomous fluctuations in beliefs that in turn have causal effects on economic activity. In the proceedings of a symposium on the causes of the 1990 -1991 recession, both Hall (1993 and Blanchard (1993) regard exogenous movements in consumption as a cause of business cycles. Indeed, Blanchard proposes that the cause of the recession was a powerful, long-lasting negative consumption shock associated with an exogenous shift in pessimism that had a causal effect on overall aggregate demand. While not fully pursuing the idea in his brief paper, Innovations to consumer confidence convey incremental information about economic activity far into the future. Does this reflect a causal effect of animal spirits on economic activity, or news about exogenous future productivity received by consumers? Using indirect inference, we study the impulse responses to confidence innovations in conjunction with an appropriately augmented New Keynesian model. While news, animal spirits, and pure noise all contribute to confidence innovations, the relationship between confidence and subsequent activity is almost entirely reflective of the news component. Confidence innovations are well characterized as noisy measures of changes in expected productivity growth over a relatively long horizon. (JEL D12, D83, D84, E12) ). We are particularly grateful to two anonymous referees for suggestions that have substantially improved the paper. We also acknowledge the comments of

No abstract