Long-Term Consequences of Growing up in a Recession on Risk Preferences

43 Pages Posted: 16 Oct 2019

See all articles by Hitoshi Shigeoka

Hitoshi Shigeoka

Simon Fraser University (SFU); National Bureau of Economic Research (NBER)

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Date Written: October 7, 2019

Abstract

Risk preferences play a fundamental role in individuals’ economic decision-making. We examine whether the historical macroeconomic environment shapes individuals’ willingness to take risks. Using nationally representative samples from Japan and exploiting regional variation in economic conditions, we find that men who experienced severe economic conditions in youth are more risk averse in adulthood and the effect is long-lasting. In addition, those men are less likely to be self-employed and they have longer tenure, which are consistent with elevated risk aversion. This study highlights the importance of experience at a critical period of life on the formation of risk preferences.

Keywords: risk preference, recession, labor market outcome, impressionable years hypothesis

JEL Classification: D81, Z13, J24

Suggested Citation

Shigeoka, Hitoshi, Long-Term Consequences of Growing up in a Recession on Risk Preferences (October 7, 2019). Available at SSRN: https://ssrn.com/abstract=3465393 or http://dx.doi.org/10.2139/ssrn.3465393

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