IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-20-00774.html
   My bibliography  Save this article

The Impact of the COVID-19 Crisis on Individuals' Risk and Time Preferences

Author

Listed:
  • Luc Meunier

    (ESSCA School of Management)

  • Sima Ohadi

    (ohadi.sima@gmail.com)

Abstract

Crises, such as the COVID-19 crisis, are expected to affect individuals' risk and time preferences towards being more cautious. We test this hypothesis experimentally during the COVID-19 pandemic using a longitudinal design. In line with the general expectations of more cautious behaviors, we observe a significant increase in loss aversion and a decrease in present bias. The increase in loss aversion is driven by respondents who have negligible tangible assets, no children, and are from mainland Europe. The decrease in present bias leads to significantly higher discount factors (i.e., more patience) for the next three to four quarters. Older respondents drive this decrease in present bias. Further analysis reveals that this effect of age is explained by older individuals' perception of a higher risk of severe health consequences if one catches COVID-19.

Suggested Citation

  • Luc Meunier & Sima Ohadi, 2021. "The Impact of the COVID-19 Crisis on Individuals' Risk and Time Preferences," Economics Bulletin, AccessEcon, vol. 41(3), pages 1050-1069.
    • Handle: RePEc:ebl:ecbull:eb-20-00774
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2021/Volume41/EB-21-V41-I3-P90.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lisa Cameron & Manisha Shah, 2015. "Risk-Taking Behavior in the Wake of Natural Disasters," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 484-515.
    2. Dossche, Maarten & Zlatanos, Stylianos, 2020. "COVID-19 and the increase in household savings: precautionary or forced?," Economic Bulletin Boxes, European Central Bank, vol. 6.
    3. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David Huffman & Uwe Sunde, 2018. "Global Evidence on Economic Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1645-1692.
    4. Dalton, Patricio S. & Nhung, Nguyen & Rüschenpöhler, Julius, 2020. "Worries of the poor: The impact of financial burden on the risk attitudes of micro-entrepreneurs," Journal of Economic Psychology, Elsevier, vol. 79(C).
    5. Cassar, Alessandra & Healy, Andrew & von Kessler, Carl, 2017. "Trust, Risk, and Time Preferences After a Natural Disaster: Experimental Evidence from Thailand," World Development, Elsevier, vol. 94(C), pages 90-105.
    6. Quang Nguyen & Colin Camerer & Tomomi Tanaka, 2010. "Risk and Time Preferences Linking Experimental and Household Data from Vietnam," Post-Print halshs-00547090, HAL.
    7. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, May.
    8. Bellucci, Davide & Fuochi, Giulia & Conzo, Pierluigi, 2020. "Childhood exposure to the Second World War and financial risk taking in adult life," Journal of Economic Psychology, Elsevier, vol. 79(C).
    9. Pikulina, Elena & Renneboog, Luc & Tobler, Philippe N., 2017. "Overconfidence and investment: An experimental approach," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 175-192.
    10. Hetschko, Clemens & Preuss, Malte, 2020. "Income in jeopardy: How losing employment affects the willingness to take risks," Journal of Economic Psychology, Elsevier, vol. 79(C).
    11. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2018. "Time varying risk aversion," Journal of Financial Economics, Elsevier, vol. 128(3), pages 403-421.
    12. Arnaud Reynaud & Cécile Aubert, 2020. "Does flood experience modify risk preferences? Evidence from an artefactual field experiment in Vietnam," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 45(1), pages 36-74, March.
    13. Krupka, Erin L. & Stephens, Melvin, 2013. "The stability of measured time preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 11-19.
    14. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    15. Daniela Bellani & Bruno Arpino, 2021. "Risk aversion and fertility. Evidence from a lottery question in Italy," Econometrics Working Papers Archive 2021_02, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
    16. Abatayo, Anna Lou & Lynham, John, 2020. "Risk preferences after a typhoon: An artefactual field experiment with fishers in the Philippines," Journal of Economic Psychology, Elsevier, vol. 79(C).
    17. Callen, Michael, 2015. "Catastrophes and time preference: Evidence from the Indian Ocean Earthquake," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 199-214.
    18. Armin Falk & Anke Becker & Thomas Dohmen & Benjamin Enke & David B. Huffman & Uwe Sunde, 2017. "Global Evidence on Economic Preferences," NBER Working Papers 23943, National Bureau of Economic Research, Inc.
    19. Chuang, Yating & Schechter, Laura, 2015. "Stability of experimental and survey measures of risk, time, and social preferences: A review and some new results," Journal of Development Economics, Elsevier, vol. 117(C), pages 151-170.
    20. Debra Friedman & Michael Hechter & Satoshi Kanazawa, 1994. "A theory of the value of children," Demography, Springer;Population Association of America (PAA), vol. 31(3), pages 375-401, August.
    21. Eckel, Catherine C. & El-Gamal, Mahmoud A. & Wilson, Rick K., 2009. "Risk loving after the storm: A Bayesian-Network study of Hurricane Katrina evacuees," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 110-124, February.
    22. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    23. Benhabib, Jess & Bisin, Alberto & Schotter, Andrew, 2010. "Present-bias, quasi-hyperbolic discounting, and fixed costs," Games and Economic Behavior, Elsevier, vol. 69(2), pages 205-223, July.
    24. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-571, March.
    25. Page, Lionel & Savage, David A. & Torgler, Benno, 2014. "Variation in risk seeking behaviour following large losses: A natural experiment," European Economic Review, Elsevier, vol. 71(C), pages 121-131.
    26. repec:cup:judgdm:v:5:y:2010:i:5:p:411-419 is not listed on IDEAS
    27. Mark Dean & Anja Sautmann, 2014. "Credit Constraints and the Measurement of Time Preferences," Working Papers 2014-1, Brown University, Department of Economics.
    28. Ulrike Malmendier & Stefan Nagel, 2011. "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 373-416.
    29. Hannah Schildberg-Hörisch, 2018. "Are Risk Preferences Stable?," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 135-154, Spring.
    30. Banks, James & Bassoli, Elena & Mammi, Irene, 2020. "Changing attitudes to risk at older ages: The role of health and other life events," Journal of Economic Psychology, Elsevier, vol. 79(C).
    31. Bucciol, Alessandro & Zarri, Luca, 2015. "The shadow of the past: Financial risk taking and negative life events," Journal of Economic Psychology, Elsevier, vol. 48(C), pages 1-16.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hamza Umer, 2023. "A selected literature review of the effect of Covid-19 on preferences," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 9(1), pages 147-156, June.
    2. Ingwersen, Nicholas & Frankenberg, Elizabeth & Thomas, Duncan, 2023. "Evolution of risk aversion over five years after a major natural disaster," Journal of Development Economics, Elsevier, vol. 163(C).
    3. Nicholas Ingwersen & Elizabeth Frankenberg & Duncan Thomas, 2023. "Evolution of Risk Aversion over Five Years after a Major Natural Disaster," NBER Working Papers 31102, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jetter, Michael & Magnusson, Leandro M. & Roth, Sebastian, 2020. "Becoming sensitive: Males’ risk and time preferences after the 2008 financial crisis," European Economic Review, Elsevier, vol. 128(C).
    2. Boutin, Delphine & Petifour, Laurene & Megzari, Haris, 2023. "Permanent Instability of Preferences after COVID-19 Crisis: A Natural Experiment from Urban Burkina Faso," IZA Discussion Papers 16075, Institute of Labor Economics (IZA).
    3. Ayton, Peter & Bernile, Gennaro & Bucciol, Alessandro & Zarri, Luca, 2020. "The impact of life experiences on risk taking," Journal of Economic Psychology, Elsevier, vol. 79(C).
    4. Andreas C. Drichoutis & Rodolfo M. Nayga, 2022. "On the stability of risk and time preferences amid the COVID-19 pandemic," Experimental Economics, Springer;Economic Science Association, vol. 25(3), pages 759-794, June.
    5. Kureishi, Wataru & Paule-Paludkiewicz, Hannah & Tsujiyama, Hitoshi & Wakabayashi, Midori, 2021. "Time preferences over the life cycle and household saving puzzles," Journal of Monetary Economics, Elsevier, vol. 124(C), pages 123-139.
    6. Delphine Boutin & Laurène Petifour & Haris Megzari, 2022. "Instability of preferences due to Covid-19 Crisis and emotions: a natural experiment from urban Burkina Faso," Working Papers hal-03623601, HAL.
    7. Castillo, Jose Gabriel & Hernandez, Manuel A., 2023. "The unintended consequences of confinement: Evidence from the rural area in Guatemala," Journal of Economic Psychology, Elsevier, vol. 95(C).
    8. Delphine BOUTIN & Laurène PETIFOUR & Haris MEGZARI, 2022. "Instability of preferences due to Covid-19 Crisis and emotions: a natural experiment from urban Burkina Faso," Bordeaux Economics Working Papers 2022-05, Bordeaux School of Economics (BSE).
    9. Kureishi, Wataru & Paule-Paludkiewicz, Hannah & Tsujiyama, Hitoshi & Wakabayashi, Midori, 2020. "Time preferences over the life cycle," SAFE Working Paper Series 267, Leibniz Institute for Financial Research SAFE, revised 2020.
    10. Shachat, Jason & Walker, Matthew J. & Wei, Lijia, 2021. "How the onset of the Covid-19 pandemic impacted pro-social behaviour and individual preferences: Experimental evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 480-494.
    11. Preuss, Malte, 2021. "Intra-individual stability of two survey measures on forward-looking attitude," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 201-227.
    12. Pushkar Maitra & Ananta Neelim, 2021. "Behavioural characteristics, stability of preferences and entrepreneurial success," Chapters, in: Ananish Chaudhuri (ed.), A Research Agenda for Experimental Economics, chapter 5, pages 93-118, Edward Elgar Publishing.
    13. Ubfal, Diego, 2016. "How general are time preferences? Eliciting good-specific discount rates," Journal of Development Economics, Elsevier, vol. 118(C), pages 150-170.
    14. 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, American Economic Association, vol. 15(4), pages 68-99, October.
    15. Freitas-Monteiro, Teresa & Ludolph, Lars, 2021. "Barriers to humanitarian migration, victimisation and integration outcomes: evidence from Germany," LSE Research Online Documents on Economics 110500, London School of Economics and Political Science, LSE Library.
    16. Kettlewell, Nathan, 2019. "Risk preference dynamics around life events," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 66-84.
    17. Beine, Michel & Charness, Gary & Dupuy, Arnaud & Joxhe, Majlinda, 2020. "Shaking Things Up: On the Stability of Risk and Time Preferences," IZA Discussion Papers 13084, Institute of Labor Economics (IZA).
    18. Arnaud Reynaud & Cécile Aubert, 2020. "Does flood experience modify risk preferences? Evidence from an artefactual field experiment in Vietnam," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 45(1), pages 36-74, March.
    19. Fang, Guanfu & Li, Wei & Zhu, Ying, 2022. "The shadow of the epidemic: Long-term impacts of meningitis exposure on risk preference and behaviors," World Development, Elsevier, vol. 157(C).
    20. Biener, Christian & Landmann, Andreas, 2023. "Recovery mode: Non-cognitive skills after the storm," World Development, Elsevier, vol. 164(C).

    More about this item

    Keywords

    Risk Preferences; Time Preferences; Prospect Theory; Loss Aversion; Present Bias; Economic Crisis;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D1 - Microeconomics - - Household Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-20-00774. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.