AXA Chair

The AXA Chair in Household Finance and Insurance

The AXA Chair in Household Finance and Insurance, held by Luigi Guiso, was started in January 2012 with the financial support of the AXA Research Fund, a global initiative of scientific philanthropy supported by the insurance group AXA. It was the first AXA Chair to be instituted in Italy.

OFFICIAL LAUNCH

The Official Launch took place on March 19th, 2012, with the participation of Ignazio Visco, Governor of the Bank of Italy, Fréderic de Courtois, CEO of AXA MPS, Flavio Valeri, CEO of Deutsche Bank Italy, Luigi Zingales, Professor of Finance at the University of Chicago and Edward Prescott, Nobel Laureate in Economics.

Inaugural Lecture by Luigi Guiso, Rome, March 2012.

RESEARCH QUESTIONS AND PUBLICATIONS

luigi-guiso-at-axa.jpg

Households financial decisions and how they use financial markets and instruments to achieve their goals have become central topics in financial research, reflecting their prominence in the financial industry of all advanced countries. Take the US as an example. As of 2010
- the total value of assets held by households amounted to $72 trillion
- on the liability side, households have $14 trillion in debt
These figures are larger than the total value of assets and liabilities held by corporations. Furthermore, most of the growth in the financial industry comes from rising asset management fees paid by households. Hence, the finances of households deserve at least as much attention as the finances of corporations.

The chair takes a broad perspective on Household Finance. Using insights from the Economics of Cultural Norms, it investigates the whole spectrum of individuals’ financial choices and people’s interactions with financial markets, their assets allocation decisions, trading patterns, liability management and mortgage choice, payment instruments choice and insurance decisions.

One distinctive research focus of the chair is on preferences, beliefs and norms, their measurement using novel elicitation techniques, the understanding of their role for explaining financial behavior and of their determinants. Can we elicit preferences for risk, and if so how? How are different attitudes towards risk (risk aversion, aversion to ambiguity, regret) related? What drives them? Do they evolve over time and if so why? How can we best measure beliefs, such as stock market returns beliefs or trust beliefs? Do they matter and how much? Do they differ among people or rather do people have common beliefs? Why does trust matter?

Recent published and forthcoming papers

Asset Market Participation and Portfolio Choice over the Life-Cycle“, with Andreas Fagereng and Charles Gottlieb, Journal of Finance, forthcoming.
Trust and Cheating“, with Jeff Butler and Paola Giuliano, Economic Journal, forthcoming.
The Right Amount of Trust“, with Jeff Butler and Paola Giuliano, Journal of the European Economic Association, forthcoming.
Trust, Values and False Consensus“, with Jeff Butler and Paola Giuliano, International Economic Review, 2015, Volume 56, Issue 3, pages 889-915.
How Can Financial Literacy Help?“, with Eliana Viviano, Review of Finance, 2015, Volume 19, Issue 4, pages 1347-1382.
The Role of Intuition and Reasoning in Driving Aversion to Risk and Aversion to Ambiguity“, with Jeff Butler and Tullio Jappelli, Theory and Decision, 2014, Volume 77, Issue 4, pages 455-484.
Pension Wealth Uncertainty“, with Tullio Jappelli and Mario Padula, Journal of Risk and Insurance, 2013, Volume 80, Issue 4, pages 1057-1085.
Household Finance. An Emerging Field” with Paolo Sodini, in Handbook of the Economics of Finance, edited by Constandinides, G., M. Harris and R. Stulz, Volume 2, Part B, pages 1397-1532, Elsevier Science, 2013.
Durable Consumption and Asset Management with Transaction and Observation Costs“, with Fernando Alvarez and Francesco Lippi, American Economic Review, 2012, Volume 102, Issue 5, pages 2272-2300.

Projects under way

A number of projects are still in progress; interim results have been circulated as working papers. They cover several areas of research including financial literacy and its benefits, the triggers of trust and cheating, the determinants of variations in risky preferences over time (documenting a substantial increase of risk aversion during the crisis).

“The Supply Side of Household Finance”, with Gabriele Foà, Leonardo Gambacorta and Paolo Mistrulli, EIEF WP 7/15, July 2015.
Time Varying Risk Aversion“, with Paola Sapienza and Luigi Zingales, EIEF WP 22/13, August 2013. Mentioned by The Economist (25 January, 2014)

Collaborations within EIEF

The chair holder is carrying out his research in collaboration with other researchers at EIEF. Two prominent participants are Jeffrey Butler, Assistant Professor at Louisiana State University, who is engaged in research on trust, preferences, values and finance in great part through the use of laboratory experiments, and Francesco Lippi, Fellow at EIEF, who is doing research, financed with an ERC Grant, on households’ financial decisions with costly trades and information frictions.

A NEW HOUSEHOLD FINANCE DATABASE

As part of the Chair activity, a new large-scale Household Finance database is being built (the project also involves Luigi Pistaferri (Stanford University) and Andreas Fagereng (Statistics Norway)).

Much of the current empirical research on Household Finance is based on household surveys. Their main advantage is that they collect information on households’ many features and choices, but they have serious disadvantages. The sample size is limited; it is difficult to collect data over many years for the same people; assets and incomes are prone to measurement error, as many households are unwilling to report their asset holdings.

To overcome these problems a novel dataset on Norwegian households, unique in many respects, is being created (with the cooperation of the Norwegian national statistical institute). The dataset is based on administrative tax records that cover the whole Norwegian population and are available for a long time span (from 1995); as the data is reported to the tax authority directly by the intermediaries, it is error-free and it is unlikely to be affected by tax evasion distortions. The new database, still to be completed, has been used to analyse households’ asset market participation and portfolio choice over the life-cycle; preliminary results can be found in:

Asset Market Participation and Portfolio Choice over the Life-Cycle“, with Andreas Fagereng and Charles Gottlieb, EIEF WP 26/13, October 2013.

axa-conference.JPG

COURSE ON HOUSEHOLD FINANCE

In the Spring term the AXA Chair offers a course on “Household Finance” to Ph. D. students in the Graduate Program at EIEF. The goal is to provide a comprehensive overview of the most relevant academic contributions in household finance and their implications for empirical analysis.

ANNUAL HOUSEHOLD FINANCE CONFERENCE

The Chair is one of the drivers behind the annual Household Finance Conference, organized by EIEF with other prominent centers worldwide since 2010. In 2012 EIEF, together with Oxford Saïd Business School, the National Bureau of Economic Research and Frankfurt University, organized this event in Oxford. In September 2013 the conference, hosted by EIEF, was organized with the Center of Excellence on Sustainable Architecture for Finance in Europe (SAFE) at Goethe University, Frankfurt, and the Swedish House of Finance (SHoF). The annual Household Finance Conference represents a unique opportunity to present and discuss state-of-the-art empirical research on household financial behavior and on how this is influenced by government policies and the overall economic environment. Below, links to the conferences’ programs are provided.

Conference on Household Finance – 23-24 September 2010, Athens, Greece. Program.
CSF-EIEF Conference on Household Finance, 6-7 October, 2011, Rome, Italy. Program.
NBER-Oxford Saïd-CFS-EIEF Conference on Household Finance, 21-22 September, 2012, Oxford, UK. Program.
European Conference on Household Finance, 19-21 September, 2013, Rome, Italy. Program.
European Conference on Household Finance, 12-13 September, 2014, Stockholm, Sweden. Program.
European Conference on Household Finance, 11-12 September, 2015, Frankfurt, Germany. Program.

EUROPEAN HOUSEHOLD FINANCE NETWORK

Another relevant initiative of the Chair was the creation of a Household Finance Network in Europe, involving the best centers with an active group of researchers in the field. Currently, besides EIEF, the network includes Oxford University Saïd School of Business, Stockholm University House of Finance, Frankfurt University, Aalto University (Helsinki); researchers at the ECB working in Household Finance are also involved.

PARTICIPATION OF THE CHAIR IN AXA MEETINGS

The chair holder has actively collaborated with AXA and has been involved as a speaker in some of the AXA Corporate annual meetings over the past two years. Below are the presentations delivered at these events.
A Changing Investors/Intermediary Relationship“. Presentation at the 2012 AXA Annual Corporate Meeting, Berlin, Germany.
Risk Aversion“. Presentation at the 2012 AXA-Italy Annual Corporate Meeting, Perugia, Italy.
Donne e Rischio“. Presentation at the 2012 Italian AXA Forum, Rome, Italy (in Italian).
Le PMI al centro della crescita: quale ruolo per il settore finanziario e assicurativo“. Presentation at the 2013 Italian AXA Forum, Rome, Italy (in Italian).

MEDIA ACTIVITY AND CONTRIBUTIONS TO “IL SOLE 24 Ore”

Interview at the Italian AXA Forum, Rome, October 2013 (in Italian)

Weekly editorials on “Il Sole24 Ore” (in Italian)

Since December 2012 the Chair holder contributes a weekly op-ed to “Il Sole 24 Ore” on Household Finance issues, signed as AXA Professor of Household Finance. Topics covered range from people investment decisions to debt management, what explains people’s ability to make financial decisions, why the cost of insurance differs so markedly across Europe.