Portfolio choice and risk attitudes: a household bargaining approach

The goal of this study is to understand how the households decide on portfolio asset allocation when the husband and wife have different risk preferences. Using data from the Health and Retirement Study for 1992–2006, we show that the share of risky assets in portfolios of two-person households increases with the risk tolerance of the spouse who has more bargaining power. The risk tolerance of the spouse who has less bargaining power does not seem to affect the share of household wealth allocated to risky assets. These results are consistent with a cooperative bargaining framework where the investment in risky assets depends on the bargaining power of the more risk tolerant spouse.