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Economic systems and risk preferences: evidence from East and West Germany

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  • Neugart, Michael

Abstract

For standard economic models it is typically assumed that preferences are given and stable. But do economic systems shape individuals' risk preferences? Using the reunification of East and West Germany as a natural experiment I evaluate differences in financial risk taking comparing Eastern and Western German households for almost two decades after the fall of the Berlin Wall. Controlling for a large set of socio-economic variables East Germans having been ``treated'' by a command economy were more prone to taking financial risk than West German citizens. The differences were quantitatively relevant after the fall of the Iron Curtain and almost vanished by 2008.

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  • Neugart, Michael, 2016. "Economic systems and risk preferences: evidence from East and West Germany," VfS Annual Conference 2016 (Augsburg): Demographic Change 145475, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145475
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    2. Cobb-Clark, Deborah A. & Dahmann, Sarah Christina & Kamhöfer, Daniel A. & Schildberg-Hörisch, Hannah, 2022. "The determinants of population self-control," DICE Discussion Papers 385, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Schaewitz, Johannes & Wang, Mei & Rieger, Marc Oliver, 2022. "Culture and Institutions: Long-lasting effects of communism on risk and time preferences of individuals in Europe," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 785-829.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General

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