Is relative risk aversion constant? A reinterpretation of recent asset allocation findings at the micro level

Recent work about risk preferences at the micro level mainly finds that changes in liquid wealth over time do not affect or have a positive effect on the liquid risky asset share. This paper embeds riskless noncapital income in standard portfolio choice models, and shows that exogenous difference habit better accounts for these findings concerning asset allocations with respect to wealth changes than the well-known preference of constant relative risk aversion itself.