54 Pages Posted: 8 Oct 2014 Last revised: 1 Aug 2016
Date Written: July 26, 2016
We study how inertia and personal experiences affect individual risk taking. Our research design relies on active portfolio decisions relating to inheritances to separate the effect of personal experiences from inertia, which otherwise would be observationally equivalent. Experience derives from investments in banks that defaulted following the financial crisis. We classify experiences into first-hand experiences, resulting from personal losses; second-hand experiences, from the losses of close family members; and third-hand experiences, from living in municipalities where banks defaulted. Our results demonstrate that experiences gained personally, aside from inertia or common shocks, explain substantial heterogeneity in individuals’ risk taking.
Keywords: Experiences, Inertia, Risk taking, Financial crisis, Household finance
JEL Classification: D03, D14, G11
Suggested Citation: Suggested Citation
Andersen, Steffen and Hanspal, Tobin and Nielsen, Kasper Meisner, Once Bitten, Twice Shy: The Role of Inertia and Personal Experiences in Risk Taking (July 26, 2016). Available at SSRN: https://ssrn.com/abstract=2506627 or http://dx.doi.org/10.2139/ssrn.2506627