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Income in jeopardy: How losing employment affects the willingness to take risks

Clemens Hetschko () and Malte Preuss

Journal of Economic Psychology, 2020, vol. 79, issue C

Abstract: Identifying the determinants of risk-taking is crucial for our understanding of a variety of choices. Using German panel data, we find that people become more risk-averse when losing work. The immediate income loss does not mediate this effect. It seems also unrelated to the loss of non-monetary benefits of work and to changes of worker’s emotional state. However, we find that risk aversion responds the more strongly to losing work the more future income is at stake, and that the effect manifests itself already on the eve of job loss when people do not yet suffer from the consequences of the event. We conclude that lower future income expectations and more uncertainty about future incomes may explain the effect of job loss on risk attitude. Our results might imply that a recession may reinforce itself as it induces people to fear job loss, which raises their risk aversion and might therefore reduce the willingness to invest in risky projects. Moreover, self-assessed risk attitude seems to measure absolute risk aversion and thus not only an underlying risk preference parameter.

Keywords: Risk attitude; Job loss; Job insecurity; Expectations about future income; Measurement of risk attitude (search for similar items in EconPapers)
JEL-codes: C83 C91 D81 D91 E24 J64 J65 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Income in Jeopardy: How Losing Employment Affects the Willingness to Take Risks (2016) Downloads
Working Paper: Income in Jeopardy: How Losing Employment Affects the Willingness to Take Risks (2015) Downloads
Working Paper: Income in Jeopardy: How losing employment affects the willingness to take risks (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:79:y:2020:i:c:s0167487018307141

DOI: 10.1016/j.joep.2019.05.005

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