Air pollution and individual risk preference: Evidence from China

Individual risk preference is a crucial determinant of decision-making under conditions of uncertainty. Risk preference is associated with internal individual characteristics as well as external environmental factors, such as air pollution. Combining a nationally representative longitudinal survey with Air Quality Index(AQI) and thermal inversion data, we find that for each unit increase in the AQI reduces risk preference by 8.9% of one standard deviation. Furthermore, heterogeneous analysis shows that men, youth, unmarried, employed, low-income level, low-education level and people with lower attention to the environment are more likely to be affected by air pollution. Research on mechanisms shows that air polluton may affect the risk preferences of individuals by affecting emotions and cognition.