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Divorce as Risky Behavior

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  • Audrey Light

    ()
    (Department of Economics, Ohio State University)

  • Taehyun Ahn

    ()
    (Office for Labor Market Research, Korea Labor Institute)

Abstract

Given that divorce often represents a high-stakes income gamble, we ask how individual levels of risk tolerance affect the decision to divorce. We extend the orthodox divorce model by assuming individuals are risk averse, marriage is risky, and divorce is even riskier. The model predicts that conditional on the expected gains to marriage and divorce, the probability of divorce increases with relative risk tolerance because risk averse individuals require compensation for the additional risk inherent in divorce. To implement the model empirically, we use data for first-married women and men from the NLSY79 to estimate a probit model of divorce in which a measure of risk tolerance is among the covariates. The estimates reveal that a one-point increase in risk tolerance raises the predicted probability of divorce by 4.3% for a representative man and by 11.4% for a representative woman. These findings are consistent with the notion that divorce entails a greater income gamble for women than for men.

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Bibliographic Info

Paper provided by Ohio State University, Department of Economics in its series Working Papers with number 07-06.

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Length: 40 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:osu:osuewp:07-06

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  1. Kimball, Miles S & Sahm, Claudia R & Shapiro, Matthew D, 2008. "Imputing Risk Tolerance From Survey Responses," Journal of the American Statistical Association, American Statistical Association, vol. 103(483), pages 1028-1038.
  2. Claudia R. Sahm, 2007. "Stability of risk preference," Finance and Economics Discussion Series 2007-66, Board of Governors of the Federal Reserve System (U.S.).
  3. Evelyn Lehrer & Carmel Chiswick, 1993. "Religion as a determinant of marital stability," Demography, Springer, vol. 30(3), pages 385-404, August.
  4. Kotlikoff, Laurence J & Spivak, Avia, 1981. "The Family as an Incomplete Annuities Market," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 372-91, April.
  5. Alain Chateauneuf & Michèle Cohen & Isaac Meilijson, 2004. "Four notions of mean preserving increase in risk, risk attitudes and applications to the Rank-Dependent Expected Utility model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00212281, HAL.
  6. Saul D. Hoffman & Greg J. Duncan, 1995. "The Effect of Incomes, Wages, and AFDC Benefits on Marital Disruption," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 19-41.
  7. Robert A. Pollak, 2005. "Bargaining Power in Marriage: Earnings, Wage Rates and Household Production," NBER Working Papers 11239, National Bureau of Economic Research, Inc.
  8. Justin Wolfers, 2006. "Did Unilateral Divorce Laws Raise Divorce Rates? A Reconciliation and New Results," American Economic Review, American Economic Association, vol. 96(5), pages 1802-1820, December.
  9. Lehrer, Evelyn L, 1996. "Religion as a Determinant of Marital Fertility," Journal of Population Economics, Springer, vol. 9(2), pages 173-96, May.
  10. Kerwin Kofi Charles & Melvin Stephens, 2004. "Job Displacement, Disability, and Divorce," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 489-522, April.
  11. Peters, H Elizabeth, 1986. "Marriage and Divorce: Informational Constraints and Private Contracting," American Economic Review, American Economic Association, vol. 76(3), pages 437-54, June.
  12. Lucie Schmidt, 2008. "Risk preferences and the timing of marriage and childbearing," Demography, Springer, vol. 45(2), pages 439-460, May.
  13. Christy Spivey, 2010. "Desperation Or Desire? The Role Of Risk Aversion In Marriage," Economic Inquiry, Western Economic Association International, vol. 48(2), pages 499-516, 04.
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Cited by:
  1. Lundberg, Shelly, 2010. "Personality and Marital Surplus," IZA Discussion Papers 4945, Institute for the Study of Labor (IZA).
  2. Shelly Lundberg, 2011. "Psychology and Family Economics," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(s1), pages 66-81, 05.
  3. Audrey Light & Yoshiaki Omori, 2013. "Determinants of Long-Term Unions: Who Survives the “Seven Year Itch”?," Population Research and Policy Review, Springer, vol. 32(6), pages 851-891, December.

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