Document Type

Working Paper

Publication Date

1-10-2013

Working Paper Number

WP #13002, January 2013

Abstract

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 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.

JEL Classification

D81, C23

File Format

application/pdf

Length

26 pages

Included in

Economics Commons

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