Can Risk Averse Households Make Risky Investments? The Role of Trust in Others

Alessandro Bucciol, Barbara Cavasso () and Luca Zarri

No 12/2015, Working Papers from University of Verona, Department of Economics

Abstract: Using the 2006 wave of the Survey on Health, Ageing and Retirement in Europe (SHARE), this paper sheds light on the role jointly played by individuals’ financial risk tolerance and their level of trust in others (generalized trust) in affecting their risky assets investments. We document that large variation in risk tolerance and trust exists across European countries and households and we show that risky assets investments are more frequent and larger in households featuring either risk tolerance or (to a smaller extent) a combination of risk aversion and trust. Trust thus acts as a substitute (albeit an imperfect one) for risk tolerance. Our findings have implications for our understanding of heterogeneity in household financial decisions as well as of the role that trust can play as a lubricant of the economic system.

Keywords: Portfolio Choice; Risk Tolerance, Generalized Trust (search for similar items in EconPapers)
JEL-codes: D03 D14 D81 G11 (search for similar items in EconPapers)
Pages: 23
Date: 2015-03
New Economics Papers: this item is included in nep-eur, nep-soc and nep-upt
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Citations: View citations in EconPapers (4)

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Journal Article: Can Risk‐Averse Households Make Risky Investments? The Role of Trust in Others (2019)
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