Are Risk Attitudes Fixed Factors or Fleeting Feelings?

In Soo Cho

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We investigate the stability of measured risk attitudes over time, using a 13-year longitudinal sample of individuals in the NLSY79. We find that an individual's risk aversion changes systematically in response to personal economic circumstances. Risk aversion increases with lengthening spells of employment and time out of labor force, and decreases with lengthening unemployment spells. However, the most important result is that the majority of the variation in risk aversion is due to changes in measured individual tastes over time and not to variation across individuals. These findings that measured risk preferences are endogenous and subject to substantial measurement errors suggest caution in interpreting coefficients in models relying on contemporaneous, one-time measures of risk preferences.

Keywords: risk aversion; stability; variance decomposition; within; measurement error; between; fixed effects (search for similar items in EconPapers)
JEL-codes: C23 D81 (search for similar items in EconPapers)
Date: 2013-01-10
New Economics Papers: this item is included in nep-exp, nep-lab, nep-rmg and nep-upt
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:35751

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