Ruhr Economic Papers

Ruhr Economic Papers #581

Health Shocks and Risk Aversion

by Simon Decker and Hendrik Schmitz

RGS, RWI, UDE, 10/2015, 36 S./p., 8 Euro, ISBN 978-3-86788-673-4 DOI: 10.4419/86788673

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Abstract

Risk preferences are typically assumed to be constant for an individual across the life cycle. In this paper we empirically assess if they are time varying. Specifically, we analyse whether health shocks influence individual risk aversion. We follow an innovative approach and use grip strength data to obtain an objective health shock indicator. In order to account for the non-random nature of our data we employ
regression-adjusted matching. Health shocks are found to increase individual risk aversion. The finding is robust to a series of sensitivity analyses.

JEL-Classification: C81, D01, D81, I10

Keywords: Risk preferences; health shocks; hand grip strength; regression-adjusted matching

Published as:

Decker, S. and H. Schmitz (2016), Health Shocks and Risk Aversion. Journal of Health Economics 50 : 154-170. DOI: 10.1016/j.jhealeco.2016.09.006 

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