Are Risk Attitudes Fixed Factors or Fleeting Feelings?
We investigate the stability of measured risk attitudes over time, using a 13-year longitudinal sample of individuals in the NLSY79. We find that an individualâ€™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. �
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