The Likelihood of Divorce and the Riskiness of Financial Decisions

33 Pages Posted: 12 Aug 2019 Last revised: 31 Jan 2023

See all articles by Oded Stark

Oded Stark

University of Bonn; University of Warsaw; University of Tuebingen

Krzysztof Szczygielski

University of Warsaw

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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: marital-based difference in attitudes towards risk, men's preferences towards risk, concern at having low relative wealth, risk-taking behavior, relative and absolute risk aversion, 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. IZA Discussion Paper No. 12518, Available at SSRN: https://ssrn.com/abstract=3435393 or http://dx.doi.org/10.2139/ssrn.3435393

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

Krzysztof Szczygielski

University of Warsaw ( email )

Krakowskie Przedmiescie 26/28
Warszawa, Pl-00681
Poland

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