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Risk preference dynamics around life events

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  • Kettlewell, Nathan

Abstract

Using a panel of Australians I estimate the dynamic relationship between common life events and risk preferences. Changes in financial circumstances, parenthood and family loss predict changes in risk preferences. Importantly the effects are largest closer to the event date and disappear over time. This supports a model of preference formation where risk preferences are (trend) stable but fluctuations are at least partly deterministic. The linkages between life events and risk preferences are explored. There is little evidence that changes in consumption, state dependence, or changes in mental health and mood explain the results. However, emotional stability is an influential moderator suggesting that emotions play an important role.

Suggested Citation

  • Kettlewell, Nathan, 2019. "Risk preference dynamics around life events," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 66-84.
  • Handle: RePEc:eee:jeborg:v:162:y:2019:i:c:p:66-84
    DOI: 10.1016/j.jebo.2019.04.018
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    Cited by:

    1. Armando N. Meier, 2019. "Emotions, Risk Attitudes, and Patience," SOEPpapers on Multidisciplinary Panel Data Research 1041, DIW Berlin, The German Socio-Economic Panel (SOEP).

    More about this item

    Keywords

    Risk preferences; Life events; Dynamics; Fixed effects ordered logit;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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