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

Mika Akesaka, Peter Eibich, Chie Hanaoka and Hitoshi Shigeoka

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Abstract: The poor live paycheck to paycheck and are repeatedly exposed to strong cyclical income fluctuations. We investigate whether such income fluctuations affect their risk preference. 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 the poor relying heavily on Social Security become more risk tolerant before payday. More than cognitive decline before payday, the deterioration of mental health and relative deprivation are likely to play a role. We find similar evidence among the Japanese elderly.

Date: 2023
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Citations: View citations in EconPapers (3)

Published in American Economic Journal: Applied Economics, 2023, 15 (4), pp.68-99. ⟨10.1257/app.20220073⟩

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Journal Article: Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles (2023)
Working Paper: Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles (2021)
Working Paper: Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04274725

DOI: 10.1257/app.20220073

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