The Likelihood of Divorce and the Riskiness of Financial Decisions

ZEF-Discussion Papers on Development Policy No. 280

34 Pages Posted: 8 Aug 2019

See all articles by Oded Stark

Oded Stark

University of Bonn; University of Warsaw; University of Tuebingen; Georgetown University

Krzysztof Szczygielski

University of Warsaw

Multiple version iconThere are 2 versions of this paper

Date Written: August 5, 2019

Abstract

We link causally the riskiness of men's management of their finances with the probability of their experiencing a divorce. Our point of departure is that when comparing single men to married men, the former manage their finances in a more aggressive (that is, riskier) manner. Assuming that single men believe that low relative wealth has a negative effect on their standing in the marriage market and that they care about their standing in that market more than married men do, we find that a stronger distaste for low relative wealth translates into reduced relative risk aversion and, consequently, into riskier financial behavior. With this relationship in place we show how this difference varies depending on the "background" likelihood of divorce and, hence, on the likelihood of re-entry into the marriage market: married men in environments that are more prone to divorce exhibit risk-taking behavior that is more similar to that of single men than married men in environments that are little prone to divorce. We offer a theoretical contribution that helps inform and interpret empirical observations and regularities and can serve as a guide for follow-up empirical work, having established and identified the direction of causality.

Keywords: Men's preferences towards risk, Risk-taking behavior, Concern at having low relative wealth, Relative and absolute risk aversion, Marital-based difference in attitudes towards risk; Likelihood of divorce

JEL Classification: D21, D81, G32

Suggested Citation

Stark, Oded and Szczygielski, Krzysztof, The Likelihood of Divorce and the Riskiness of Financial Decisions (August 5, 2019). ZEF-Discussion Papers on Development Policy No. 280, Available at SSRN: https://ssrn.com/abstract=3432258 or http://dx.doi.org/10.2139/ssrn.3432258

Oded Stark (Contact Author)

University of Bonn ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

University of Warsaw ( email )

Dluga Street 44/50
Warsaw, 00-241
Poland

University of Tuebingen

Wilhelmstr. 19
Tuebingen, Baden Wuerttemberg 72074
Germany

Georgetown University ( email )

Washington, DC 20057
United States

Krzysztof Szczygielski

University of Warsaw ( email )

Krakowskie Przedmiescie 26/28
Warszawa, Pl-00681
Poland

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