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Are Risk Attitudes Fixed Factors or Fleeting Feelings?

Author

Listed:
  • Insoo Cho

    (York College of Pennsylvania)

  • Peter F. Orazem

    (Iowa State University)

  • Tanya Rosenblat

    (University of Michigan)

Abstract

We investigate the stability of measured risk attitudes over time, using a 13-year longitudinal sample of individuals in the National Longitudinal Survey of Youth 1979. We find that an individual’s risk aversion changes systematically in response to personal economic circumstances. Risk aversion increases with lengthening spells of employment and time out of labor force, and decreases with lengthening unemployment spells. However, the most important result is that the majority of the variation in risk aversion is due to changes in measured individual tastes over time and not to variation across individuals. These findings that measured risk preferences are endogenous and subject to substantial measurement errors suggest caution in interpreting coefficients in models relying on contemporaneous, one-time measures of risk preferences.

Suggested Citation

  • Insoo Cho & Peter F. Orazem & Tanya Rosenblat, 2018. "Are Risk Attitudes Fixed Factors or Fleeting Feelings?," Journal of Labor Research, Springer, vol. 39(2), pages 127-149, June.
    • Handle: RePEc:spr:jlabre:v:39:y:2018:i:2:d:10.1007_s12122-018-9262-2
    DOI: 10.1007/s12122-018-9262-2
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    3. Franco, Catalina & Mahadevan, Meera, 2021. "Behavioral dynamics in transitions from college to the workforce," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 567-590.

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    More about this item

    Keywords

    Risk aversion; Stability; Variance decomposition; Measurement error; Within and between variance;
    All these keywords.

    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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