Dynamics of risk attitudes

People’s willingness to take risks affects a range of decisions, many of them relevant for (pension) saving and investing. Financial institutions therefore have a special interest in the risk attitudes of their clients and even a legal obligation to measure clients’ risk attitudes and to take these into account. With the recent pension agreement, pension funds are also prompted to consider the risk attitudes of their participants in their investment strategy (Koolmees, 2019). However, to properly consider risk attitudes it is crucial to know whether risk attitudes are stable over time.

If risk attitudes are stable over the life-cycle, a one-time measurement would be sufficient to get an indication of someone’s willingness to take risks. Yet, if risk attitudes change over the life cycle, repeated measurements would be required. It then also becomes pertinent to know the causes that lead to a likely change in risk attitudes. In this topicality project we will both (1) consider the literature on the stability of risk attitudes and (2) use a unique dataset linking risk attitude measurements with CBS administrative data to consider the relation between individual life events, risk attitudes, and financial decisions.

Read the paper here.