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Risk Attitude in Couples

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  • Philomena M. Bacon

    (Department of Economics, Lancaster University Management School, United Kingdom)

  • Anna Conte

    (Strategic Interaction Group, Max Planck Institute of Economics, Jena, and EQM Department, University of Westminster, London)

  • Peter G. Moffatt

    ()
    (School of Economics, University of East Anglia, Norwich, United Kingdom)

Abstract

The determinants of risk attitude in couples are explored using data from the German Socio-Economic Panel over the period 2004 to 2009. The focus of the analysis is the repeated responses to the survey question about general willingness to take risk. Responses to this question are provided on a 0-10 Likert scale. We focus on couples in the data set, and we apply the bivariate panel ordered probit model to the analysis of the simultaneous determination of the male's and the female's risk attitude. A number of individual characteristics, including age, height, education and household income, are found to have strong effects on risk attitude, in some cases differing markedly between the male and the female. Both the individual-specific effects and the observation-specific error terms are assumed to have non-zero correlations between the two equations. These correlations are estimated to be +0.27 and +0.28 respectively. We consider the former to be a key parameter, since its positive sign may be interpreted as a form of homophily: individuals tend to form partnerships with others having a similar risk attitude.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2012-016.

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Date of creation: 25 Apr 2012
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Handle: RePEc:jrp:jrpwrp:2012-016

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Keywords: Multiple Equation Models; Panel Data; Risk Attitude;

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  1. Dohmen Thomas & Falk Armin & Huffman David & Sunde Uwe & Schupp Jürgen & Wagner Gert G., 2009. "Individual Risk Attitudes: Measurement, Determinants and Behavioral Consequences," Research Memorandum 039, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Ian Bateman & Alistair Munro, 2005. "An Experiment on Risky Choice Amongst Households," Economic Journal, Royal Economic Society, vol. 115(502), pages C176-C189, 03.
  3. N Powdthavee, 2008. "I Can’t Smile Without You: Spousal Correlation in Life Satisfaction," Discussion Papers 08/16, Department of Economics, University of York.
  4. Daniela Di Cagno & Emanuela Sciubba & Marco Spallone, 2012. "Choosing a gambling partner: testing a model of mutual insurance in the lab," Theory and Decision, Springer, vol. 72(4), pages 537-571, April.
  5. Ekelund, Jesper & Johansson, Edvard & Jarvelin, Marjo-Riitta & Lichtermann, Dirk, 2005. "Self-employment and risk aversion--evidence from psychological test data," Labour Economics, Elsevier, vol. 12(5), pages 649-659, October.
  6. Guillaume R. Frechette, 2001. "Random-effects ordered probit," Stata Technical Bulletin, StataCorp LP, vol. 10(59).
  7. Masclet, David & Colombier, Nathalie & Denant-Boemont, Laurent & Lohéac, Youenn, 2009. "Group and individual risk preferences: A lottery-choice experiment with self-employed and salaried workers," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 470-484, June.
  8. Clark, Andrew E. & Etilé, Fabrice, 2005. "Don't Give Up On Me Baby: Spousal Correlation in Smoking Behaviour," IZA Discussion Papers 1692, Institute for the Study of Labor (IZA).
  9. Guillaume R. Frechette, 2001. "Update to random-effects ordered probit," Stata Technical Bulletin, StataCorp LP, vol. 10(61).
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