Risk-Taking Adaptation to Macroeconomic Experiences

Remy Levin and Daniela Vidart
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Remy Levin: University of Connecticut

No 2021-09, Working papers from University of Connecticut, Department of Economics

Abstract: We study how lifetime experiences of macroeconomic volatility shape individual risk attitudes. We build a Bayesian model where risk aversion endogenously adapts to agents’ beliefs about an exogenous income process. We combine panel data from Indonesia and Mexico containing elicited measures of risk aversion with state-level real GDP growth time series capturing individuals’ lifetime macroeconomic experiences. In line with the model’s predictions, we find that measured risk aversion increases with macroeconomic volatility, and that this is a first-order driver of risk attitudes. These results are robust to many alternate specifications and controls and extend to risk-taking behavior in other domains.

Keywords: Risk attitudes; experience effects; macroeconomic volatility; growth (search for similar items in EconPapers)
JEL-codes: D81 D83 E32 E70 G50 O11 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2021-05, Revised 2023-11
New Economics Papers: this item is included in nep-agr, nep-cwa, nep-dev, nep-mac and nep-sea
Note: Remy Levin is the corresponding author
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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2021-09

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