becomes more positive. Note however that most mainstream economists agree that the evidence shows substantial statistical power. Benartzi & Thaler analyzed the equity returns over a 200-year period, between 1802 and 1990 and found that whilst equity returns were remained stable between 5.5% and 6.5%, return on government bonds fell significantly from around 5% to 0.5%. Moreover, analysis of how faculty members funded their retirement showed that people who had invested in stocks received much higher returns than people who had invested in government bonds. Implications Implications for the Individual Investor For the individual investor, the equity premium may represent a reasonable reward for taking on the risk of buying shares such that they base their decisions to allocate assets to shares or bonds depending on how risk tolerant or risk averse they are. On the other hand, if the investor believes that the equity premium arise from mistakes and fears, they would capitalize on that fear and mistake and invest considerable portions of their assets in shares. Here, it is prudent to note that economists more commonly allocate significant portions of their asset in shares. Currently, the equity premium is estimated to be 3%. Although this is lower than historical rates, it is still significantly more advantageous than bonds for investors investing in their retirements funds and other long-term funds. The magnitude of the equity premium brings about substantial implications for policy, welfare and also resource allocation. Policy and Welfare Implications Campbell and Cochrane (1995) have found in a study of a model that simulates equity premium value's consistent with asset prices, welfare costs are similar in magnitude to welfare benefits. Therefore essentially, a large risk premium in society where asset prices are a reflection of consumer preferences, implies that the cost of welfare is also large. It also means that in recessions, welfare costs are excessive regardless of aggregate consumption. As the equity premium rises, recession-state income marginal values steadily increase also thus further increasing the welfare costs of recessions. This also brings about questions regarding the need for microeconomic policies that operate by way of higher productivity in the long run by trading off short-term pain in the form of adjustment costs. Given the impact on welfare through recessions and the large equity premium, it is evident that these short-term trade offs as a result of economic policy are likely not ideal, and would be preferred to