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Time-stability of risk preferences: A new approach with evidence from developed and developing countries

Author

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  • Nicolás Salamanca

    (Melbourne Institute, University of Melbourne)

  • Buly A. Cardak

    (La Trobe Business School, La Trobe University)

  • Edwin Ip

    (Department of Economics, University of Exeter)

  • Joe Vecci

    (Department of Economics, University of Gothenburg)

Abstract

Time-stability of preferences is a crucial assumption in economics. We develop a novel test-retest method to examine the stability of risk preferences over time, while quantifying the importance of both idiosyncratic shocks and measurement error. Using eight large, representative datasets from developing and developed countries, we find risk preferences to be unstable in developing countries. In contrast, they are very stable in developed countries, except for low-income individuals in the U.S.. We discuss the important implications of these findings for policies and research.

Suggested Citation

  • Nicolás Salamanca & Buly A. Cardak & Edwin Ip & Joe Vecci, 2023. "Time-stability of risk preferences: A new approach with evidence from developed and developing countries," Discussion Papers 2305, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:2305
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    1. Dohmen, Thomas & Khamis, Melanie & Lehmann, Hartmut & Pignatti, Norberto, 2023. "Risk Attitudes and Informal Employment in Ukraine," IZA Discussion Papers 16445, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    risk preferences; stability; economic development;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General

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