Health shocks and risk aversion |
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| Institution: | 1. University of Duisburg-Essen, Germany;2. CINCH Health Economics Research Center, Germany;3. Ruhr Graduate School in Economics (RGS Econ), Germany;4. University of Paderborn, Germany;5. RWI Essen, Germany;1. University of Bonn, Maastricht University, IZA and DIW, Berlin;2. University of Bologna, IZA and DIW, Berlin;3. International School of Economics at Tbilisi State University;1. Department of Social Policy, Behavioural Research Lab, LSE Health, London School of Economics, Old 2.35 Old Building, Houghton Street, London WC2A 2AE, UK;2. École d''Économie de Paris, Hospinnomics, Paris School of Economics, Hôtel-Dieu, 1, Parvis de Notre-Dame, Bâtiment B1, 5° étage, 75004 Paris, France;3. Management Group, Imperial College Business School, South Kensington Campus, London SW7 2AZ, UK;4. School of Health Sciences, City, University of London, Northampton Square, London EC1V 0HB, UK;5. Health Economics Research Unit, University of Aberdeen, Polwarth Building, Foresterhill, Aberdeen AB25 2ZD, UK;1. China Financial Policy Research Center, School of Finance, Renmin University of China, 59 Zhongguancun Street, Beijing 100872, China;2. Department of Economics, Texas A&M University, College Station, TX 77843, USA and NBER;3. Research Group, The World Bank, 1818 H Street, NW Washington, DC 20433, USA;4. China Center for Economic Research, Peking University, Beijing 100871, China |
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| Abstract: | We empirically assess whether a health shock influences individual risk aversion. We use grip strength data to obtain an objective health shock indicator. In order to account for the non-random nature of our data regression-adjusted matching is employed. Risk preferences are traditionally assumed to be constant. However, we find that a health shock increases individual risk aversion. The finding is robust to a series of sensitivity analyses and persists for at least four years after the shock. Income changes do not seem to be the driving mechanism. |
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