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The impact of economic conditions on individual and managerial risk taking

Author

Listed:
  • Mark Browne

    (St. John’s University)

  • Verena Jaeger

    (Ludwig-Maximilians-Universität)

  • Petra Steinorth

    (Universität Hamburg)

Abstract

The current study examines how the financial crisis of 2008–2009 impacted individuals’ willingness to take risks (WTR). We find substantial changes in the WTR associated with the financial crisis which supports countercyclical risk aversion while controlling for wealth effects and risk perception. Yet, we also observe a quick recovery of the WTR immediately after the crisis. We find that managers are less risk averse in general, but participated less in the pre-crisis upswing in the WTR. Post-crisis, the managerial WTR took a deeper hit compared to the overall population. Changes in risk tolerance levels also differ across income levels, which we attribute to greater exposure to the stock market depreciation during the crisis.

Suggested Citation

  • Mark Browne & Verena Jaeger & Petra Steinorth, 2019. "The impact of economic conditions on individual and managerial risk taking," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(1), pages 27-53, March.
    • Handle: RePEc:kap:geneva:v:44:y:2019:i:1:d:10.1057_s10713-018-00037-1
    DOI: 10.1057/s10713-018-00037-1
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    Cited by:

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    More about this item

    Keywords

    Risk preferences; Countercyclical risk aversion; Managerial decision making; Financial crisis;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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