Lifecycle patterns in the socioeconomic gradient of risk preferences

Abstract

We investigate which socioeconomic groups are most likely to change their risk preferences over the lifecourse using data from a nationally representative German survey and methods to separate age from cohort and period effects. Tolerance to risk drops by 0.5 SD across all socioeconomic groups from late adolescence up to age 45. From age 45 socioeconomic gradients emerge – risk tolerance continues to drop for the most disadvantaged and stabilizes for all other groups – and reach a maximum of 0.5 SD by age 65. These results matter because increased levels of risk aversion are associated with imprudent financial decisions in the event of crises.