NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Long-Term Consequences of Growing up in a Recession on Risk Preferences

Hitoshi Shigeoka

NBER Working Paper No. 26352
Issued in October 2019
NBER Program(s):Program on the Economics of Aging, Labor Studies Program, Public Economics Program, Political Economy Program

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.

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Document Object Identifier (DOI): 10.3386/w26352

 
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