The Effect of a Major Pandemic on Risk Preferences: Evidence from Exposure to COVID-19

Diskussionspapiere extern

Daniel Graeber, Ulrich Schmidt, Carsten Schröder, Johannes Seebauer

Rochester : SSRN, 2020, 43 S.

Abstract

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.

Daniel Graeber

Research Associate in the German Socio-Economic Panel study Department

Carsten Schröder

Vize-Direktor SOEP und Bereichsleitung Angewandte Panelanalysen in the German Socio-Economic Panel study Department



JEL-Classification: D81;I10;I12
Keywords: Risk preferences, COVID-19, infection rate, representative real-time survey data, natural experiment
DOI:
http://dx.doi.org/10.2139/ssrn.3724461

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