Does Health Influence Risk Preference?
MetadataShow full item record
This paper investigates whether self-assessed health (SAH) status—a measure of health stock—influences the risk preference of an individual. Using the National Longitudinal Study of Adolescent Health (Add Health), we estimate that better health during adolescence is associated with more willingness to take risks when people are around age 30. Moreover, the experience of a reduction in their health stock between adolescence and young adulthood is even more strongly associated with willingness to take risk later in their lives—a finding that provides a novel pathway through which individual’s loss aversion gets operationalized. These findings are robust to regression specifications—linear probability, fixed effects, and generalized ordered logistic regression models—as well as to the inclusion of exogenous personal characteristics—variables that are shown to be related to both health and various measures of risk in the existing literature. Our findings remained robust even after including two heritable measures of personality—neuroticism and conscientiousness—that could have bearing on both health and risk preference. These findings are quite pertinent in building a better understanding of the processes that govern deepening of the market mechanism and the processes leading to policy formation. If similar findings hold for older populations, then it potentially establishes a link between health and the future of financial markets and the pace of change in policy regimes.
- R & P Seminar