Table 1.

Risk Tolerance Response Categories

Response Category	Downside Risk of Risky Job		Bounds on Risk Tolerance		% Income Pay to Avoid 1/2 Downside Risk
	Accepted	Rejected	Lower	Upper
1	None	1/10	0	0.13	46
2	1/10	1/5	0.13	0.27	41
3	1/5	1/3	0.27	0.50	31
4	1/3	1/2	0.50	1.00	20
5	½	3/4	1.00	3.27	8
6	¾	None	3.27	∞	–

NOTE: In a series of questions, respondents choose between a job with a certain income and a job with risky income. With equal chances, the risky job will double lifetime income or cut lifetime income by a specific fraction (downside risk). The largest risk accepted and the smallest risk rejected across gambles define a response category. In 1992 there are four categories 1–2, 3, 4, and 5–6. In 1994 and later surveys, the response categories range from 1 to 6. At the lower bound of risk tolerance for a category, an individual with CRRA utility is indifferent between the certain job and a risky job with the largest downside risk accepted. The upper bound similarly follows from the smallest downside risk rejected. The percent of lifetime income that an individual is willing to pay to avoid the risky job with a 1/2 downside risk is calculated with the upper bound of risk tolerance in the response category.