Once Bitten, Twice Shy: The Role of Inertia and Personal Experiences in Risk Taking

Steffen Andersen, Tobin Hanspal, Kasper Meisner Nielsen

Research output: Working paperResearch

Abstract

We study how inertia and personal experiences affect individual risk taking. Our research design relies on active portfolio decisions relating to inheritances to separate the effect of personal experiences from inertia, which otherwise would be observationally equivalent. Experience derives from investments in banks that defaulted following the financial crisis. We classify experiences into first-hand experiences, resulting from personal losses; second-hand experiences, from the losses of close family members; and third-hand experiences, from living in municipalities where banks defaulted. Our results demonstrate that experiences gained personally, aside from inertia or common shocks, explain substantial heterogeneity in individuals' risk taking.
We study how inertia and personal experiences affect individual risk taking. Our research design relies on active portfolio decisions relating to inheritances to separate the effect of personal experiences from inertia, which otherwise would be observationally equivalent. Experience derives from investments in banks that defaulted following the financial crisis. We classify experiences into first-hand experiences, resulting from personal losses; second-hand experiences, from the losses of close family members; and third-hand experiences, from living in municipalities where banks defaulted. Our results demonstrate that experiences gained personally, aside from inertia or common shocks, explain substantial heterogeneity in individuals' risk taking.
LanguageEnglish
Place of PublicationLondon
PublisherCentre for Economic Policy Research
Number of pages54
StatePublished - 2016
SeriesCentre for Economic Policy Research. Discussion Papers
Number11504
ISSN0265-8003

Bibliographical note

CBS Library does not have access to the material

Keywords

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

Cite this

Andersen, S., Hanspal, T., & Meisner Nielsen, K. (2016). Once Bitten, Twice Shy: The Role of Inertia and Personal Experiences in Risk Taking. London: Centre for Economic Policy Research. Centre for Economic Policy Research. Discussion Papers, No. 11504
Andersen, Steffen ; Hanspal, Tobin ; Meisner Nielsen, Kasper. / Once Bitten, Twice Shy : The Role of Inertia and Personal Experiences in Risk Taking. London : Centre for Economic Policy Research, 2016. (Centre for Economic Policy Research. Discussion Papers; No. 11504).
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Andersen, S, Hanspal, T & Meisner Nielsen, K 2016 'Once Bitten, Twice Shy: The Role of Inertia and Personal Experiences in Risk Taking' Centre for Economic Policy Research, London.

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

London : Centre for Economic Policy Research, 2016.

Research output: Working paperResearch

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Andersen S, Hanspal T, Meisner Nielsen K. Once Bitten, Twice Shy: The Role of Inertia and Personal Experiences in Risk Taking. London: Centre for Economic Policy Research. 2016.