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Long-Term Consequences of Growing up in a Recession on Risk Preferences

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  • Hitoshi Shigeoka

Abstract

Risk preferences play a fundamental role in individuals’ economic decision-making. We examine whether the historical macroeconomic environment shapes individuals’ willingness to take risks. Using nationally representative samples from Japan and exploiting regional variation in economic conditions, we find that men who experienced severe economic conditions in youth are more risk averse in adulthood and the effect is long-lasting. In addition, those men are less likely to be self-employed and they have longer tenure, which are consistent with elevated risk aversion. This study highlights the importance of experience at a critical period of life on the formation of risk preferences.

Suggested Citation

  • Hitoshi Shigeoka, 2019. "Long-Term Consequences of Growing up in a Recession on Risk Preferences," NBER Working Papers 26352, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26352
    Note: AG LS PE POL
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    2. Alena Bičáková & Guido Matias Cortes & Jacopo Mazza, 2021. "Caught in the Cycle: Economic Conditions at Enrolment and Labour Market Outcomes of College Graduates," The Economic Journal, Royal Economic Society, vol. 131(638), pages 2383-2412.
    3. Bičáková, Alena & Cortes, Guido Matias & Mazza, Jacopo, 2023. "Make your own luck: The wage gains from starting college in a bad economy," Labour Economics, Elsevier, vol. 84(C).
    4. Maria Cotofan & Lea Cassar & Robert Dur & Stephan Meier, 2023. "Macroeconomic Conditions When Young Shape Job Preferences for Life," The Review of Economics and Statistics, MIT Press, vol. 105(2), pages 467-473, March.
    5. Bietenbeck, Jan & Sunde, Uwe & Thiemann, Petra, 2023. "Recession Experiences during Early Adulthood Shape Prosocial Attitudes Later in Life," IZA Discussion Papers 16490, Institute of Labor Economics (IZA).
    6. Garcia-Brazales, Javier, 2022. "Unlearning Traditionalism: The Long-Run Effects of Schools on Gender Attitudes," EconStor Preprints 232502, ZBW - Leibniz Information Centre for Economics, revised 2022.
    7. Irene Mussio & Maximiliano Sosa Andrés & Abdul H Kidwai, 2023. "Higher order risk attitudes in the time of COVID-19: an experimental study," Oxford Economic Papers, Oxford University Press, vol. 75(1), pages 163-182.
    8. Favara, Marta & Freund, Richard & Perez-Alvarez, Marcello, 2023. "What If It Never Happened? Subjective Treatment Effects of a Negative Shock on Youth Labour Market Outcomes in Developing Countries," IZA Discussion Papers 16417, Institute of Labor Economics (IZA).
    9. Dominique Pépin & Stephen M. Miller, 2020. "The Time-Varying Nature of Risk Aversion: Evidence from 60 Years of U.S. Stock Market Data," Working papers 2020-09, University of Connecticut, Department of Economics.
    10. Hansen, Kerstin F. & Stutzer, Alois, 2021. "Experiencing Booms and Busts in the Welfare State and Support for Redistribution," IZA Discussion Papers 14327, Institute of Labor Economics (IZA).

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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