Determinants of risk aversion over time: Experimental evidence from rural Thailand

Abstract

We use a repeated incentivized risk experiment in rural Thailand to test determinants of changes in the level of individual risk aversion over time. We find that risk aversion significantly changes between 2008 and 2013 as a result of macro-and micro-level shocks. Strong macroeconomic recovery following the 2007/08 financial crisis makes people more risk-seeking, whereas macroeconomic normalization thereafter increases risk aversion parameters. On the micro-level, we observe that negative economic and agricultural shocks increase risk aversion. Subjective perceptions of well-being and expectations also play a role but do not drive the macro-micro determinants of changes in individual risk aversion.

Impact of Formal Climate Risk Transfer Mechanisms on Risk-Aversion: Empirical Evidence from Rural Ethiopia

“…Section 2 reviews prior works that provide a link between (insurance) markets and households' preferences and behavior. Section 3 describes the insurance product, and presents the source of data and 1 The evidence on the impact of climate shocks on individual risk preferences using cross-sectional data in Gloede et al (2015) is consistent with the findings of Sakha (2019) that use panel data. methods of data analysis.…”

“…Risk preferences and the availability of institutions that facilitate risk bearing are not independent (Roumasset, 1976;Eswaran & Kotwal, 1986;Mendola, 2007). Empirical studies by Gloede, Menkhoff, and Waibel (2015) and Sakha (2019) show that the exposure of rural households to uninsured weather anomalies increases individual risk-aversion. 1 We hypothesize that farmers' access to WICI -a climate risk transfer mechanism -could be a stimulus that may have a reverse effect.…”

“…Our study contributes to the small but growing literature on the effects of markets on individual riskaversion (see Section 2 for a review). Outside the context of markets, there are also few but growing number of empirical studies that show changes in risk-aversion due to individual's exposure to conflict and violence (Voors et al, 2012;Callen, Isaqzadeh, Long, & Sprenger, 2014;Moya, 2018;Jakiela & Ozier, 2019), climate shocks and natural disasters (Eckel, El-gamal, & Wilson, 2009;Cameron & Shah, 2015;Gloede et al, 2015;Cassar, Healy, & Kessler, 2017;Hanaoka, Shigeoka, & Watanabe, 2018;Sakha, 2019), and financial shocks (Malmendier & Nagel, 2011;Cohn, Engelmann, Fehr, & Maréchal, 2015).…”

Overtime risk preference and its determinants: Evidence from Indonesia

“…Nonetheless, research from several studies argues that risk perceptions will shift in many ways over time (e.g. Schildberg-Hörisch (2018), Sakha (2019)). Firstly, exposure to a different environment can alter preferences slowly.…”

Markets and human behavior

“…The concept of endogeneity of preferences and the role of social, economic, and environmental factors in the formation of preferences has garnered the attention of researchers over the course of the last two decades. Existing empirical evidence show that environmental shocks and natural disasters (Page et al, 2014;Cameron & Shah, 2015;Hanaoka et al, 2018;Kahsay & Osberghaus, 2018;Di Falco et al, 2019;Sakha, 2019), macroeconomic and financial shocks (Malmendier & Nagel, 2011;Cohn et al, 2015;Guiso et al, 2018;Sakha, 2019), exposure to violence and crime (Voors et al, 2012;Callen et al, 2014;Jakiela & Ozier, 2019;Brown et al, 2019) shape preferences. Market exposure may affect investment behavior through a multitude of channels, e.g., via increasing income, social network, and access to information.…”