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How Do Households Allocate Risk?

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  • Christoph Engel
  • Alexandra Fedorets
  • Olga Gorelkina

Abstract

Individuals often have to decide to which degree of risk they want to expose others, or how much risk to accept if their choice has an externality on third parties. One typical application is a household. We run an experiment in the German Socio-Economic Panel with two members from 494 households. Participants have a good estimate of each other’s risk preferences, even if not explicitly informed. They do not simply match this preference when deciding on behalf of the other household member, but shy away from exposing others to risk. We model the situation, and we find four distinct types of individuals, and two distinct types of households.

Suggested Citation

  • Christoph Engel & Alexandra Fedorets & Olga Gorelkina, 2018. "How Do Households Allocate Risk?," SOEPpapers on Multidisciplinary Panel Data Research 1000, DIW Berlin, The German Socio-Economic Panel (SOEP).
    • Handle: RePEc:diw:diwsop:diw_sp1000
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    Cited by:

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    2. Schröder, Carsten & König, Johannes & Fedorets, Alexandra & Goebel, Jan & Grabka, Markus M. & Lüthen, Holger & Metzing, Maria & Schikora, Felicitas & Liebig, Stefan, 2020. "The economic research potentials of the German Socio-Economic Panel study," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 21(3), pages 335-371.
    3. Urs Fischbacher & Levent Neyse & David Richter & Carsten Schröder, 2024. "Adding household surveys to the behavioral economics toolbox: insights from the SOEP innovation sample," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 10(1), pages 136-151, June.

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    More about this item

    Keywords

    risk preference; household; reticence to expose others to risk; trade-off between individual and foreign risk preference;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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