Personal life events and individual risk preferences

Marriage, parenthood and work influence risk preferences

Measuring risk preferences plays an important role in the Future Pensions Act. The financial industry and policymakers often implicitly assume that a person’s risk preferences remain stable over time. However, personal life events could seriously impact these preferences. Therefore this study investigated whether personal changes in marital status, parenthood and employment are associated with changes in risk preferences and how long such effects last. Preferences were elicited using self-assessment surveys (stated risk preferences) and methods where people could earn real money (revealed risk preferences).

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Key Takeaways for the Industry

  • The impact of life events on risk preferences should not be underestimated but more research is necessary for robust results.
  • It could be important when risk preferences are elicited in a person’s life cycle and to reassess after life events occured.
  • Knowledge about the impact of life events on risk preferences is fragmented so far and requires more systematic research.

 

Want to know more?

Read the paper ‘Personal life events and individual risk preferences’ van Paul Bokern (UM, CBS), Jona Linde (UM), Arno Riedl (UM, IZA Bonn and CESifo), Hans Schmeets (UM, CBS) and Peter Werner (UM).

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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