^{26}Note the choice of a coeﬃcient of relative risk aversion of 6, in contrast with the choice of 2 made for
the previous problems. This choice reﬂects the well-known ‘stockholding puzzle,’ which is the microeconomic
equivalent of the equity premium puzzle: For plausible descriptions of income uncertainty, rate of return risk,
and the equity premium, the typical consumer should hold all or nearly all of their portfolio in equities. Thus
we choose a high value for the coeﬃcient of relative risk aversion in order to generate portfolio structure
behavior more interesting than a choice of 100 percent equities in every period for every level of
wealth.