Retirement Investor Risk Tolerance in Tranquil and Crisis Periods: Experimental Survey Evidence
59 Pages Posted: 25 Aug 2010 Last revised: 12 Apr 2011
Date Written: August 25, 2010
We conduct a choice experiment to investigate the impact of the financial crisis of 2008 on retirement saver investment choice and risk aversion. Analysis of estimated individual risk parameters shows a small increase in mean risk aversion between the relatively tranquil period of early 2007 and the crisis conditions of late 2008. Investment preferences of survey respondents, estimated using the scale-adjusted version of a latent class choice model, also change during the crisis. We identify age and income as important determinants of preference classes in both surveys and age is also identified as a key determinant of variability (scale). Young and low income individuals make choices that are more consistent with standard mean-variance analysis but older and higher income individuals react positively to both higher returns and increasing risk in returns. Overall we find a mild moderating of retirement investor risk tolerance in 2008.
Keywords: risk preferences, investment decisions, financial crisis
JEL Classification: G11, G23, J26
Suggested Citation: Suggested Citation