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Health shocks and risk aversion

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  • Decker, Simon
  • Schmitz, Hendrik

Abstract

Risk preferences are typically assumed to be constant for an individual across the life cycle. In this paper we empirically assess if they are time varying. Specifically, we analyse whether health shocks influence individual risk aversion. We follow an innovative approach and use grip strength data to obtain an objective health shock indicator. In order to account for the non-random nature of our data we employ regression-adjusted matching. Health shocks are found to increase individual risk aversion. The finding is robust to a series of sensitivity analyses.

Suggested Citation

  • Decker, Simon & Schmitz, Hendrik, 2015. "Health shocks and risk aversion," Ruhr Economic Papers 581, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  • Handle: RePEc:zbw:rwirep:581
    DOI: 10.4419/86788673
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    More about this item

    Keywords

    risk preferences; health shocks; hand grip strength; regression-adjusted matching;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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