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Financial Risk Taking by Age and Birth Cohort

Author

Listed:
  • Nancy Ammon Jianakoplos

    () (Department of Economics, Colorado State University)

  • Alexandra Bernasek

    () (Department of Economics, Colorado State University)

Abstract

This study decomposes the effects of chronological age, birth cohort, and calendar year on the age profile of household financial risk taking. Using two measures of risk taking, one based on observed portfolio allocations of wealth and another based on survey respondents' stated willingness to take risk, the results support the conventional wisdom that risk taking decreases with age. The results also reveal a cohort effect that shifts the age–risk profile down from older to younger cohorts. This finding is consistent with households taking less risk in response to decreasing financial security over time. The results have implications for the impact of an aging population on stock prices and for the impact on household well-being of the trend toward individual responsibility for asset management in vehicles such as defined-contribution pensions and the proposed Social Security personal accounts.

Suggested Citation

  • Nancy Ammon Jianakoplos & Alexandra Bernasek, 2006. "Financial Risk Taking by Age and Birth Cohort," Southern Economic Journal, Southern Economic Association, vol. 72(4), pages 981-1001, April.
  • Handle: RePEc:sej:ancoec:v:72:4:y:2006:p:981-1001
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    Citations

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    Cited by:

    1. Eric Nazindigouba KERE & Jérôme FONCEL & Marielle BRUNETTE, 2014. "Attitude towards Risk and Production Decision: An Empirical analysis on French private forest owners," Working Papers 201410, CERDI.
    2. Alessandro Bucciol & Raffaele Miniaci, 2011. "Household Portfolios and Risk Bearing over Age and Time," Working Papers 15/2011, University of Verona, Department of Economics.
    3. Tracey West & Andrew Worthington, 2014. "Macroeconomic Conditions and Australian Financial Risk Attitudes, 2001–2010," Journal of Family and Economic Issues, Springer, vol. 35(2), pages 263-277, June.
    4. Yunker, James A. & Melkumian, Alla A., 2010. "The effect of capital wealth on optimal diversification: Evidence from the Survey of Consumer Finances," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 90-98, February.
    5. Yao, Rui & Sharpe, Deanna L. & Wang, Feifei, 2011. "Decomposing the age effect on risk tolerance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 879-887.
    6. Madiès, Thierry & Villeval, Marie Claire & Wasmer, Malgorzata, 2013. "Intergenerational attitudes towards strategic uncertainty and competition: A field experiment in a Swiss bank," European Economic Review, Elsevier, vol. 61(C), pages 153-168.
    7. Ding, Shujun & Jia, Chunxin & Qu, Baozhi & Wu, Zhenyu, 2015. "Corporate risk-taking: Exploring the effects of government affiliation and executives' incentives," Journal of Business Research, Elsevier, vol. 68(6), pages 1196-1204.
    8. repec:eee:finana:v:56:y:2018:i:c:p:52-72 is not listed on IDEAS
    9. Anselm Komla Abotsi & Gershon Yawo Dake & Richard Abankwa Agyepong, 2014. "Factors Influencing Risk Management Decision of Small and Medium Scale Enterprises in Ghana," Contemporary Economics, University of Finance and Management in Warsaw, vol. 8(4), December.
    10. Christine Lai, 2008. "How Retired Households and Households Approaching Retirement Handle Their Equity Investments in the United States," Journal of Family and Economic Issues, Springer, vol. 29(4), pages 601-622, December.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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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