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A MAJOR GOAL in the field of finance during the past ten years has been to reconcile empirical information about securities prices with theoretical models of asset pricing under conditions of intertemporal uncertainty. The notion of risk aversion on the part of consumer-investors has been an essential assumption underlying almost all such models and is not inconsistent with the empirical data. Investors have usually been assumed to be rational in the Von Neumann-Morgenstern [25] sense so that the expected utility theorem can be invoked. Pratt [17] and Arrow [1] independently developed the concepts of absolute and relative risk aversion as ways to indicate, as a function of wealth, the amount and proportion of wealth placed by the investor into a risky asset when his portfolio decision is limited to choosing combinations of a riskless asset and that one risky asset. The capital asset pricing model in its original form, developed by Sharpe [19], Lintner [12], and Mossin [14], is probably the most popular model of security market equilibrium and has the interesting result that all investors' portfolios consist of combinations of the riskless asset and the market portfolio of risky assets. While theories of portfolio selection have been developed, very little is known about how individuals actually go about constructing their asset portfolios (see, however, [11, 16]). This study attempts to investigate empirically the effect of wealth on the proportions of individual portfolios allocated to risky assets. A variety of econometric tests is performed on a large sample of household asset portfolios in an effort to shed light on the question.The plan of the paper is as follows; the first section reviews prior work on factors affecting risk-bearing behavior; the following segment discusses the household sample and the data; the succeeding section describes the various methods employed to analyze the data and the results obtained. A concluding section summarizes the principal results and indicates needed future research in the area. I. PREVIOUS STUDIES Cass and Stiglitz [4] have analyzed theoretically the effects of changes in wealth on risk-bearing behavior in the presence of multiple riskyWhile this study is part of an NBER project, that organization has not reviewed the results, and this paper should not be regarded as an official NBER publication. 605 606 The Journal of Finance 2. Arrow's argument depends in part on theoretical considerations with respect to the need for boundedness, both from above and from below, of the utility function. This requirement is questionable [8, 24]. 3. A thorough description of the total sample and the survey instrument can be found in [10].

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