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

Mika Akesaka, Peter Eibich, Chie Hanaoka and Hitoshi Shigeoka

No 28784, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D81 D91 I32 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-age and nep-ias
Note: AG PE
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Citations: View citations in EconPapers (2)

Published as Mika Akesaka & Peter Eibich & Chie Hanaoka & Hitoshi Shigeoka, 2023. "Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles," American Economic Journal: Applied Economics, vol 15(4), pages 68-99.

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Related works:
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 (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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