Are Risk Attitudes Fixed Factors or Fleeting Feelings?

Insoo Cho (), Peter Orazem and Tanya Rosenblat
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Insoo Cho: York College of Pennsylvania

Journal of Labor Research, 2018, vol. 39, issue 2, No 1, 127-149

Abstract: Abstract We investigate the stability of measured risk attitudes over time, using a 13-year longitudinal sample of individuals in the National Longitudinal Survey of Youth 1979. 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; Measurement error; Within and between variance (search for similar items in EconPapers)
JEL-codes: D00 D8 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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Working Paper: Are Risk Attitudes Fixed Factors or Fleeting Feelings? (2018)
Working Paper: Are risk attitudes fixed factors or fleeting feelings? (2013)
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DOI: 10.1007/s12122-018-9262-2

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