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Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles

Mika Akesaka, Peter Eibich (), Chie Hanaoka and Hitoshi Shigeoka ()

ISER Discussion Paper from Institute of Social and Economic Research, Osaka University

Abstract: The poor live paycheck to paycheck and are repeatedly exposed to strong cyclical income fluctuations. We investigate whether such income fluctuations affect risk preference among the poor. If risk preference temporarily changes around payday, optimal decisions made before payday may no longer be optimal afterward, which could reinforce poverty. By exploiting Social Security payday cycles in the US, we find that risk preference among the poor relying heavily on Social Security changes around payday. Rather than cognitive decline before payday, the deterioration of mental health and relative deprivation may play a role. We find similar evidence among the Japanese elderly.

Date: 2021-05
New Economics Papers: this item is included in nep-hea and nep-ias
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Working Paper: Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles (2021) Downloads
Working Paper: Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles (2021) Downloads
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