Once Bitten, Twice Shy

The Power of Personal Experiences in Risk Taking

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We study whether personal experiences are so powerful that they make individuals actively shy away from risk. Our research design relies on portfolio decisions relating to inheritances, which alter the active decision from one of choosing to take risk to one of choosing to reduce risk. Experience derives from investments in banks that defaulted following the 2007–2009 financial crisis. We classify experiences into first-hand experiences, resulting from personal losses; second-hand experiences, from losses of family members; and third-hand experiences, from locations where banks defaulted. Our results demonstrate that experiences gained personally, not common shocks, make individuals shy away from risk.
Original languageEnglish
JournalJournal of Financial Economics
Volume132
Issue number3
Pages (from-to)97-117
Number of pages21
ISSN0304-405X
DOIs
Publication statusPublished - 2019

Keywords

  • Experiences
  • Risk taking
  • Financial crisis
  • Household finance

Cite this

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Once Bitten, Twice Shy : The Power of Personal Experiences in Risk Taking. / Andersen, Steffen; Hanspal, Tobin; Meisner Nielsen, Kasper.

In: Journal of Financial Economics, Vol. 132, No. 3, 2019, p. 97-117.

Research output: Contribution to journalJournal articleResearchpeer-review

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