Risk preference dynamics around life events

Publication Type:
Journal Article
Citation:
Journal of Economic Behavior and Organization, 2019, 162 pp. 66 - 84
Issue Date:
2019-06-01
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© 2019 Elsevier B.V. Using a panel of Australians I estimate the dynamic relationship between common life events and risk preferences. Changes in financial circumstances, parenthood and family loss predict changes in risk preferences. Importantly the effects are largest closer to the event date and disappear over time. This supports a model of preference formation where risk preferences are (trend)stable but fluctuations are at least partly deterministic. The linkages between life events and risk preferences are explored. There is little evidence that changes in consumption, state dependence, or changes in mental health and mood explain the results. However, emotional stability is an influential moderator suggesting that emotions play an important role.
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