Familiy Transitions and Risk Attitude

Abstract

We use the German Socio Economic Panel to analyze the impact of life changing events on individuals’ risk tolerance levels over time, which is reported in response to a question on individuals’ willingness to take risks. The dataset follows a representative sample of the German population. We find substantial changes in risk attitudes over time with respect to getting married or separating from a partner, giving birth to a child for the first time, and providing care to a family member. Furthermore, we find that these effects are associated with household structure. In particular, we observe that the risk tolerance of individuals that are referred as the head of household demonstrates more extreme changes associated with life events while having children moderates the changes associated with the dissolution of households.

Keywords: Variable risk attitudes, self-reported risk attitude, life changing events, marital-status transitions, family structure, marriage

JEL Classification: D14, D81, G11, J12, J13