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The long-run impact of a traumatic experience on risk aversion

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  • Kim, Young-Il
  • Lee, Jungmin

Abstract

We examine the long-run impact of exposure to a traumatic event on risk attitudes. We estimate risk aversion of those who experienced the Korean War at different ages to identify a sensitive period for risk attitude formation. This major war broke out suddenly, and the impact of the war on civilians was substantial but limited to a brief period of time. The results reveal that individuals who were 4–8 years old during the peak of the war are more risk averse about five decades later. Furthermore, within the affected cohorts, those who resided in more severely damaged provinces are more risk averse.

Suggested Citation

  • Kim, Young-Il & Lee, Jungmin, 2014. "The long-run impact of a traumatic experience on risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 174-186.
  • Handle: RePEc:eee:jeborg:v:108:y:2014:i:c:p:174-186
    DOI: 10.1016/j.jebo.2014.09.009
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    2. Géraldine Bocquého & Marc Deschamps & Jenny Helstroffer & Julien Jacob & Majlinda Joxhe, 2018. "The risk and refugee migration," Documents de Travail de l'OFCE 2018-10, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Kenta Tanaka & Keisaku Higashida & Arvin Vista & Anton Setyo Nugroho & Budi Muhamad Ruslan, 2016. "Do resource depletion experiences affect social cooperative preferences? Analysis using field experimental data on fishers in the Philippines and Indonesia," Discussion Paper Series 143, School of Economics, Kwansei Gakuin University, revised Jun 2016.
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    5. Bucciol, Alessandro & Zarri, Luca, 2015. "The shadow of the past: Financial risk taking and negative life events," Journal of Economic Psychology, Elsevier, vol. 48(C), pages 1-16.
    6. Friederike Mengel & Elias Tsakas & Alexander Vostroknutov, 2016. "Past experience of uncertainty affects risk aversion," Experimental Economics, Springer;Economic Science Association, vol. 19(1), pages 151-176, March.
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    16. Liebenehm, Sabine & Degener, Nele & Strobl, Eric, 2018. "Rainfall shocks and risk aversion: Evidence from Southeast Asia," TVSEP Working Papers wp-006, Leibniz Universitaet Hannover, Institute of Development and Agricultural Economics, Project TVSEP.

    More about this item

    Keywords

    Risk aversion; Civil war; Childhood experience; Korean War; Sensitive period;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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