Childhood exposure to the Second World War and financial risk taking in adult life

Davide Bellucci, Giulia Fuochi and Pierluigi Conzo

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

Abstract: Adverse childhood experiences might have long-lasting effects on decisions under uncertainty in adult life. Merging the European Survey on Health, Ageing and Retirement with data on conflict events during the Second World War, and relying on region-by-cohort variation in war exposure, we show that warfare exposure during childhood is associated with lower financial risk taking in later life. Individuals who experienced war episodes as children hold less – and are less likely to hold – stocks, but are more likely to hold life insurance, compared to non-exposed individuals. Effects are robust to the inclusion of potential mediating factors, and are tested for nonlinearity and heterogeneity. Moreover, we provide evidence of hedonic adaptation to war, as high and low intensity of war exposure have comparable long-term effects. We also document that war exposure in childhood increases sensitivity to financial uncertainty since exposed-to-war individuals are less likely to hold stocks after periods of high volatility. Finally, we shed light on the most likely mechanism in the relationship between war exposure and financial risk taking – i.e., enhanced sensitivity to uncertainty – and we show that preferences, and not beliefs, channel this relationship.

Keywords: Financial risk taking; Risk aversion; Stocks; Life insurance; Life experiences; WW2 (search for similar items in EconPapers)
JEL-codes: D14 D81 D91 G01 G11 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:79:y:2020:i:c:s0167487018307220

DOI: 10.1016/j.joep.2019.102196

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