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Effects of Health and Longevity on Financial Risk Tolerance

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  • James K Hammitt

    ([1] Harvard University (Center for Risk Analysis), 718 Huntington Avenue, Boston, MA 02115, U.S.A.
    2] Toulouse School of Economics (LERNA, INRA), Manufacture des Tabacs, 21 allé de Brienne, 31042 Toulouse, France.)

  • Kevin Haninger

    (U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue, NW, Room 3417G, EPA West, Mail Code 5101T, Washington, D.C. 20460, U.S.A.)

  • Nicolas Treich

    (Toulouse School of Economics (LERNA, INRA), Manufacture des Tabacs, 21 allé de Brienne, 31042 Toulouse, France.)

Abstract

We investigate the effects of health and life expectancy on tolerance of financial risk. Using a standard life-cycle model, we find that the effects of health and life expectancy on preferences over lifetime-income risk are theoretically ambiguous. However, risk tolerance is independent of health and life expectancy when utility takes one of the standard (harmonic absolute risk aversion) functional forms or when optimal consumption is constant over time. Our empirical results, using data from a stated-preference survey (n=2,795), suggest that financial risk tolerance is positively associated with both health and life expectancy; hence utility is not consistent with standard functional forms.

Suggested Citation

  • James K Hammitt & Kevin Haninger & Nicolas Treich, 2009. "Effects of Health and Longevity on Financial Risk Tolerance," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 34(2), pages 117-139, December.
    • Handle: RePEc:pal:genrir:v:34:y:2009:i:2:p:117-139
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    Citations

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    Cited by:

    1. Marcela V. Parada‐Contzen, 2019. "The Value of a Statistical Life for Risk‐Averse and Risk‐Seeking Individuals," Risk Analysis, John Wiley & Sons, vol. 39(11), pages 2369-2390, November.
    2. Joseph G Eisenhauer, 2012. "Measuring Aversion to Health Risks," Journal of Economics and Behavioral Studies, AMH International, vol. 4(2), pages 96-107.
    3. Caterina Cruciani & Gloria Gardenal & Giuseppe Amitrano, 2022. "Risk Tolerance Tools: From Academia to Regulation and Back," Springer Books, in: Understanding Financial Risk Tolerance, chapter 0, pages 39-78, Springer.
    4. Anzel Van den Bergh-Lindeque & Sune Ferreira-Schenk & Zandri Dickason-Koekemoer & Thomas Habanabakize, 2022. "What makes risk-averse investors tick? A practitioners guide," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2111786-211, December.
    5. James Hammitt, 2013. "Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 311-325, December.
    6. James Banks & Elena Bassoli & Irene Mammi, 2019. "Changing Risk Preferences at Older Ages," Working Papers 2019:01, Department of Economics, University of Venice "Ca' Foscari".
    7. Christophe Courbage & Guillem Montoliu-Montes & Béatrice Rey, 2018. "How vulnerable is risk aversion to wealth, health and other risks? An empirical analysis for Europe," Working Papers halshs-01935846, HAL.
    8. Banks, James & Bassoli, Elena & Mammi, Irene, 2020. "Changing attitudes to risk at older ages: The role of health and other life events," Journal of Economic Psychology, Elsevier, vol. 79(C).
    9. Christophe Courbage & Guillem Montoliu-Montes & Béatrice Rey, 2018. "How vulnerable is risk aversion to wealth, health and other risks? An empirical analysis for Europe," Working Papers 1827, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    10. Jaime Ruiz-Tagle V. & Pablo Tapia G., 2012. "Brechas por Género en Aversión al Riesgo," Working Papers wp373, University of Chile, Department of Economics.
    11. Blake, David & Duffield, Mel & Tonks, Ian & Haig, Alistair & Blower, Dean & MacPhee, Laura, 2022. "Smart defaults: Determining the number of default funds in a pension scheme," The British Accounting Review, Elsevier, vol. 54(4).
    12. Kalwij, Adriaan, 2023. "Risk preferences, preventive behaviour, and the probability of a loss: Empirical evidence from the COVID-19 pandemic," Social Science & Medicine, Elsevier, vol. 334(C).

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