The shadow of the past: Financial risk taking and negative life events

Bucciol, Alessandro; Zarri, Luca

doi:10.1016/j.joep.2015.02.006

Cited by 91 publications

(55 citation statements)

References 46 publications

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“…From the onset of adulthood to old age, the trend to greater risk aversion continues but is less pronounced (Bucciol and Zarri 2015;Dohmen, Falk, Golsteyn, Huffman, and Wagner 2017;Josef, Richter, Samanez-Larkin, Wagner, Hertwig, and Mata 2016;Sahm 2012;Schurer 2015). Three studies have used panel datasets and disentangle birth cohort and period effects from age effects.…”

Section: Figure 1 Illustration Of the Framework For Studying The Stabmentioning

confidence: 99%

Are Risk Preferences Stable?

Schildberg-Hörisch

2018

Journal of Economic Perspectives

316

153

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It is ultimately an empirical question whether risk preferences are stable over time. The evidence comes from diverse strands of literature, covering the stability of risk preferences in panel data over shorter periods of time, life-cycle dynamics in risk preferences, the possibly long-lasting effects of exogenous shocks on risk preferences as well as temporary variations in risk preferences. Individual risk preferences appear to be persistent and moderately stable over time, but their degree of stability is too low to be reconciled with the assumption of perfect stability in neoclassical economic theory. We offer an alternative conceptual framework for preference stability that builds on research regarding the stability of personality traits in psychology. The definition of stability used in psychology implies high levels of rank-order stability across individuals and not that the individual will maintain the same level of a trait over time. Preference parameters are considered as distributions with a mean that is significantly but less than perfectly stable, plus some systematic variance. This framework accommodates evidence on systematic changes in risk preferences over the life cycle, due to exogenous shocks such as economic crises or natural catastrophes, and due to temporary changes in self-control resources, emotions, or stress. We note that research on the stability of (risk) preferences is conceptually at the heart of microeconomics and systematic changes in risk preferences have vital real-world consequences.

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Section: Figure 1 Illustration Of the Framework For Studying The Stabmentioning

confidence: 99%

Are Risk Preferences Stable?

Schildberg-Hörisch

2018

Journal of Economic Perspectives

316

153

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“…Risk taking is a fundamental dimension that economists investigate to explain individual differences in behavior (Bucciol & Zarri, 2015). Risk tolerance, which indicates the degree to which a person is willing to take risks, plays an important role in household portfolio decisions (Sung & Hanna, 1996) and has implications for both individuals and financial service providers (Hallahan, Faff, & McKenzie, 2004).…”

Section: Introductionmentioning

confidence: 99%

Gender differences in financial risk tolerance

Fisher

Yao

2017

Journal of Economic Psychology

159

103

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The purpose of this research is to explore gender differences in financial risk tolerance using a large, nationally representative dataset, the Survey of Consumer Finances. The impact of the explanatory variables in the model is allowed to differ between men and women to decompose gender differences in financial risk tolerance. The results indicate that gender differences in financial risk tolerance are explained by gender differences in the individual determinants of financial risk tolerance, and that the disparity does not result from gender in and of itself. The individual variables that moderate the relationship between gender and high risk tolerance are income uncertainty and net worth, with income uncertainty moderating the relationship between gender and some risk tolerance. Financial fiduciaries should understand the differences in income uncertainty and net worth between men and women and how those differences relate to risk tolerance.

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“…The existing body of literature has established that financial risk‐taking is widely heterogeneous in the population, and that it is highly correlated with individual‐level variables, such as gender, education, and race (Kimball et al ., ), age (Jianakoplos and Bernasek, ), and personal background (Dohmen et al ., ), as well as wealth (Bucciol and Miniaci, ), health (Rosen and Wu, ), and cognitive ability (Christelis et al ., ). Even though financial risk‐taking seems to be transmitted, to some extent, genetically (Cesarini et al ., ) and intergenerationally (Dohmen et al ., ), individuals’ prior life experiences (e.g., passing through a large macroeconomic shock or a major traumatic event, such as the death of a child) have been shown to play an important role (Malmendier and Nagel, ; Bucciol and Zarri, ). These results support the idea that financial risk‐taking, far from being rigid (as traditionally believed), is instead malleable and can be shaped by several life events, including social interactions (Hong et al ., ; Ahern et al ., ).…”

Section: Introductionmentioning

confidence: 99%

Can Risk‐Averse Households Make Risky Investments? The Role of Trust in Others

Bucciol

Cavasso

Zarri

2018

Scandinavian J Economics

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In this paper, using data from the Survey on Health, Ageing and Retirement in Europe (SHARE, 2006 and 2013 waves), we illustrate the link between individuals' attitudes to financial risk combined with their willingness to trust others, and their investments in risky assets. Individuals who display either risk tolerance alone or -to a lesser extent -risk aversion and trust more frequently decide to buy risky assets. The comparison between Scandinavian and Mediterranean countries indicates that trust plays qualitatively different roles depending on the prevailing combination of risk attitude and trust in the area being studied.

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The shadow of the past: Financial risk taking and negative life events

Cited by 91 publications

References 46 publications

Are Risk Preferences Stable?

Are Risk Preferences Stable?

Gender differences in financial risk tolerance

Can Risk‐Averse Households Make Risky Investments? The Role of Trust in Others

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