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The Impact of the COVID-19 Crisis on Individuals' Risk and Time Preferences

Author

Listed:
  • Luc Meunier

    (ESSCA School of Management)

  • Sima Ohadi

    (ohadi.sima@gmail.com)

Abstract

Crises, such as the COVID-19 crisis, are expected to affect individuals' risk and time preferences towards being more cautious. We test this hypothesis experimentally during the COVID-19 pandemic using a longitudinal design. In line with the general expectations of more cautious behaviors, we observe a significant increase in loss aversion and a decrease in present bias. The increase in loss aversion is driven by respondents who have negligible tangible assets, no children, and are from mainland Europe. The decrease in present bias leads to significantly higher discount factors (i.e., more patience) for the next three to four quarters. Older respondents drive this decrease in present bias. Further analysis reveals that this effect of age is explained by older individuals' perception of a higher risk of severe health consequences if one catches COVID-19.

Suggested Citation

  • Luc Meunier & Sima Ohadi, 2021. "The Impact of the COVID-19 Crisis on Individuals' Risk and Time Preferences," Economics Bulletin, AccessEcon, vol. 41(3), pages 1050-1069.
    • Handle: RePEc:ebl:ecbull:eb-20-00774
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    File URL: http://www.accessecon.com/Pubs/EB/2021/Volume41/EB-21-V41-I3-P90.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Ingwersen, Nicholas & Frankenberg, Elizabeth & Thomas, Duncan, 2023. "Evolution of risk aversion over five years after a major natural disaster," Journal of Development Economics, Elsevier, vol. 163(C).

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    More about this item

    Keywords

    Risk Preferences; Time Preferences; Prospect Theory; Loss Aversion; Present Bias; Economic Crisis;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D1 - Microeconomics - - Household Behavior

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