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Income in Jeopardy: How losing employment affects the willingness to take risks

Clemens Hetschko () and Malte Preuss

No 2015/32, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: Using German panel data, we assess the causal effect of job loss, and thus of an extensive income shock, on risk attitude. In line with predictions of expected utility reasoning about absolute risk aversion, losing one´s job reduces the willingness to take risks. This effect strengthens in previous hourly wage, begins to manifest itself as soon as an employee perceives the threat of job loss and is of a transitory nature. The change in stated risk attitude matches observable job finding behaviour, confirming the behavioural validity of our results.

Keywords: absolute risk aversion; income shock; job loss; plant closure; general risk attitude (search for similar items in EconPapers)
JEL-codes: D81 J64 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
Date: 2015
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https://www.econstor.eu/bitstream/10419/125446/1/844432520.pdf (application/pdf)

Related works:
Working Paper: Income in Jeopardy: How Losing Employment Affects the Willingness to Take Risks (2016) Downloads
Working Paper: Income in Jeopardy: How Losing Employment Affects the Willingness to Take Risks (2015) Downloads
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