Are Risk Attitudes Fixed Factors or Fleeting Feelings?
AbstractWe investigate the stability of measured risk attitudes over time, using a 13-year longitudinal sample of individuals in the NLSY79. We find that an individualâ€™s risk aversion changes systematically in response to personal economic circumstances. �Risk aversion increases with lengthening spells of employment and time out of labor force, and decreases with lengthening unemployment spells.� However, the most important result is that the majority of the variation in risk aversion is due to changes in measured individual tastes over time and not to variation across individuals.� These findings that measured risk preferences are endogenous and subject to substantial measurement errors suggest caution in interpreting coefficients in models relying on contemporaneous, one-time measures of risk preferences. �
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 35751.
Date of creation: 10 Jan 2013
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risk aversion; stability; variance decomposition; within; measurement error; between; fixed effects;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-19 (All new papers)
- NEP-EXP-2013-01-19 (Experimental Economics)
- NEP-LAB-2013-01-19 (Labour Economics)
- NEP-RMG-2013-01-19 (Risk Management)
- NEP-UPT-2013-01-19 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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