Health Shocks and Risk Aversion

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.