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Journal of Labor Research

, Volume 39, Issue 2, pp 127–149 | Cite as

Are Risk Attitudes Fixed Factors or Fleeting Feelings?

  • Insoo Cho
  • Peter F. Orazem
  • Tanya Rosenblat
Article

Abstract

We investigate the stability of measured risk attitudes over time, using a 13-year longitudinal sample of individuals in the National Longitudinal Survey of Youth 1979. 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.

Keywords

Risk aversion Stability Variance decomposition Measurement error Within and between variance 

JEL Classification

D00 D8 

Notes

Compliance with Ethical Standards

Conflict of Interest

The authors have no conflict of interest to declare.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Graham School of Business, Department of EconomicsYork College of PennsylvaniaYorkUSA
  2. 2.Department of EconomicsIowa State UniversityAmesUSA
  3. 3.School of InformationUniversity of MichiganAnn ArborUSA

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