Risk Taking in the Household: Strategic Behavior, Social Preferences, or Interdependent Preferences?

Christoph Engel (), Alexandra Fedorets and Olga Gorelkina
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Christoph Engel: Max Planck Institute for Research on Collective Goods
Alexandra Fedorets: German Institute for Economic Research (DIW Berlin)
Olga Gorelkina: University of Liverpool - Management School

No 2018_14, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: We test 494 households participating in the German Socio Economic Panel SOEP to examine risk taking by one household member that affects a second household member. Choices cannot be explained by (short term) strategic behavior. Respect for the risk preference of the counterpart is at best imperfect. Two findings suggest preference dependence: participants do not need explicit information about their counterpart’s choice to learn their risk preference. There are characteristic choice patterns not only at the individual, but also at the household level. To define these patterns, based on a theoretical model, we calculate individual risk aversion, sensitivity toward a bad outcome for the other household member, and the willingness to strike a balance between one’s own and the other’s risk preferences. Using machine learning methods, we find preference patterns, both at the individual and at the household level.

Date: 2018-11, Revised 2020-02
New Economics Papers: this item is included in nep-cbe, nep-cdm and nep-exp
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Citations: View citations in EconPapers (4)

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