The Effect of a Major Pandemic on Risk Preferences - Evidence from Exposure to COVID-19
43 Pages Posted: 5 Nov 2020
Date Written: November 3, 2020
The present paper studies the effect of the COVID-19 pandemic on risk preferences. Using real-time panel data from the year before the pandemic and from the first few months of the pandemic in Germany (April to July 2020), we provide robust evidence that exposure to COVID-19 reduces individual risk tolerance. We establish a causal link between the pandemic and risk tolerance by exploiting longitudinal and regional variation in infection rates. Our analysis shows that increased risk aversion can be observed in particular among better educated and more affluent respondents.
We further provide suggestive evidence that economic concerns, health concerns, and self-reported health partially mediate the relationship of interest.
Keywords: Risk preferences, COVID-19, infection rate, representative real-time survey data, natural experiment
JEL Classification: D81, I10, I12
Suggested Citation: Suggested Citation