Does time heal all wounds? Psychological responses to trauma and financial risk-taking

Abstract

We study whether psychological responses to trauma are associated with financial risk-taking behavior. Posttraumatic stress disorder (PTSD) symptoms for individuals, assessed after the traumatic experiences, are used as psychological responses to the events. Individuals who experience moderate-level PTSD symptoms are 1.5% more likely to invest in risky assets, whereas individuals with high-level PTSD symptoms are 2.4% less likely to invest in risky assets. Further analysis suggests that the association between PTSD symptoms and risk-taking comes through a preferences channel rather than a beliefs channel. 

Keywords: PTSD, Risk Taking, Risky Asset Market Participation, Risk Preferences JEL classification: D91

JEL Classification: D91, G11, D81