Once Bitten, Twice Shy: Do Personal Experiences or Wealth Changes Affect Risk Taking?

Steffen Andersen, Tobin Hanspal, Kasper Meisner Nielsen

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

We study how personal experiences affect individual risk taking. To separate the intertwining effects of personal experiences and wealth changes, our identification strategy relies on the decision to keep unexpected inheritances of risky assets. Experience derives from investments in banks that defaulted in the aftermath of the financial crisis. To differentiate the effect of personal experiences, we classify the degrees of experiences into first-hand experiences from personal losses, second-hand experiences from the losses of close family members, and third-hand experiences from living in municipalities where banks defaulted. We find that third-hand experiences result in marginally lower risk taking. Second-hand experiences have a relatively stronger negative effect, whereas the effect of first-hand experiences on risk taking is strongly negative. Overall, our results demonstrate that personal experiences aside from changes in wealth explain substantial heterogeneity in individuals’ risk taking.
We study how personal experiences affect individual risk taking. To separate the intertwining effects of personal experiences and wealth changes, our identification strategy relies on the decision to keep unexpected inheritances of risky assets. Experience derives from investments in banks that defaulted in the aftermath of the financial crisis. To differentiate the effect of personal experiences, we classify the degrees of experiences into first-hand experiences from personal losses, second-hand experiences from the losses of close family members, and third-hand experiences from living in municipalities where banks defaulted. We find that third-hand experiences result in marginally lower risk taking. Second-hand experiences have a relatively stronger negative effect, whereas the effect of first-hand experiences on risk taking is strongly negative. Overall, our results demonstrate that personal experiences aside from changes in wealth explain substantial heterogeneity in individuals’ risk taking.

Conference

ConferenceThe 43rd European Finance Association Annual Meeting (EFA 2016)
Number43
LocationBI Norwegian Business School
CountryNorway
CityOslo
Period17/08/201620/08/2016
Internet address

Keywords

  • Experiences
  • Inertia
  • Risk taking
  • Financial crisis
  • Household finance

Cite this

Andersen, S., Hanspal, T., & Meisner Nielsen, K. (2016). Once Bitten, Twice Shy: Do Personal Experiences or Wealth Changes Affect Risk Taking?. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.
Andersen, Steffen ; Hanspal, Tobin ; Meisner Nielsen, Kasper. / Once Bitten, Twice Shy : Do Personal Experiences or Wealth Changes Affect Risk Taking?. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.49 p.
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abstract = "We study how personal experiences affect individual risk taking. To separate the intertwining effects of personal experiences and wealth changes, our identification strategy relies on the decision to keep unexpected inheritances of risky assets. Experience derives from investments in banks that defaulted in the aftermath of the financial crisis. To differentiate the effect of personal experiences, we classify the degrees of experiences into first-hand experiences from personal losses, second-hand experiences from the losses of close family members, and third-hand experiences from living in municipalities where banks defaulted. We find that third-hand experiences result in marginally lower risk taking. Second-hand experiences have a relatively stronger negative effect, whereas the effect of first-hand experiences on risk taking is strongly negative. Overall, our results demonstrate that personal experiences aside from changes in wealth explain substantial heterogeneity in individuals’ risk taking.",
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Andersen, S, Hanspal, T & Meisner Nielsen, K 2016, 'Once Bitten, Twice Shy: Do Personal Experiences or Wealth Changes Affect Risk Taking?' Paper presented at, Oslo, Norway, 17/08/2016 - 20/08/2016, .

Once Bitten, Twice Shy : Do Personal Experiences or Wealth Changes Affect Risk Taking? / Andersen, Steffen; Hanspal, Tobin; Meisner Nielsen, Kasper.

2016. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.

Research output: Contribution to conferencePaperResearchpeer-review

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T1 - Once Bitten, Twice Shy

T2 - Do Personal Experiences or Wealth Changes Affect Risk Taking?

AU - Andersen,Steffen

AU - Hanspal,Tobin

AU - Meisner Nielsen,Kasper

PY - 2016

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N2 - We study how personal experiences affect individual risk taking. To separate the intertwining effects of personal experiences and wealth changes, our identification strategy relies on the decision to keep unexpected inheritances of risky assets. Experience derives from investments in banks that defaulted in the aftermath of the financial crisis. To differentiate the effect of personal experiences, we classify the degrees of experiences into first-hand experiences from personal losses, second-hand experiences from the losses of close family members, and third-hand experiences from living in municipalities where banks defaulted. We find that third-hand experiences result in marginally lower risk taking. Second-hand experiences have a relatively stronger negative effect, whereas the effect of first-hand experiences on risk taking is strongly negative. Overall, our results demonstrate that personal experiences aside from changes in wealth explain substantial heterogeneity in individuals’ risk taking.

AB - We study how personal experiences affect individual risk taking. To separate the intertwining effects of personal experiences and wealth changes, our identification strategy relies on the decision to keep unexpected inheritances of risky assets. Experience derives from investments in banks that defaulted in the aftermath of the financial crisis. To differentiate the effect of personal experiences, we classify the degrees of experiences into first-hand experiences from personal losses, second-hand experiences from the losses of close family members, and third-hand experiences from living in municipalities where banks defaulted. We find that third-hand experiences result in marginally lower risk taking. Second-hand experiences have a relatively stronger negative effect, whereas the effect of first-hand experiences on risk taking is strongly negative. Overall, our results demonstrate that personal experiences aside from changes in wealth explain substantial heterogeneity in individuals’ risk taking.

KW - Experiences

KW - Inertia

KW - Risk taking

KW - Financial crisis

KW - Household finance

KW - Experiences

KW - Inertia

KW - Risk taking

KW - Financial crisis

KW - Household finance

M3 - Paper

ER -

Andersen S, Hanspal T, Meisner Nielsen K. Once Bitten, Twice Shy: Do Personal Experiences or Wealth Changes Affect Risk Taking?. 2016. Paper presented at The 43rd European Finance Association Annual Meeting (EFA 2016), Oslo, Norway.