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Can Risk Averse Households Make Risky Investments? The Role of Trust in Others

Author

Listed:
  • Alessandro Bucciol

    (Department of Economics (University of Verona))

  • Barbara Cavasso

    (University of Padua)

  • Luca Zarri

    (Department of Economics (University of Verona))

Abstract

Using the 2006 wave of the Survey on Health, Ageing and Retirement in Europe (SHARE), this paper sheds light on the role jointly played by individuals’ financial risk tolerance and their level of trust in others (generalized trust) in affecting their risky assets investments. We document that large variation in risk tolerance and trust exists across European countries and households and we show that risky assets investments are more frequent and larger in households featuring either risk tolerance or (to a smaller extent) a combination of risk aversion and trust. Trust thus acts as a substitute (albeit an imperfect one) for risk tolerance. Our findings have implications for our understanding of heterogeneity in household financial decisions as well as of the role that trust can play as a lubricant of the economic system.

Suggested Citation

  • Alessandro Bucciol & Barbara Cavasso & Luca Zarri, 2015. "Can Risk Averse Households Make Risky Investments? The Role of Trust in Others," Working Papers 12/2015, University of Verona, Department of Economics.
    • Handle: RePEc:ver:wpaper:12/2015
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    Cited by:

    1. Felix Holzmeister & Martin Holmén & Michael Kirchler & Matthias Stefan & Erik Wengström, 2023. "Delegation Decisions in Finance," Management Science, INFORMS, vol. 69(8), pages 4828-4844, August.
    2. Haidong Yuan & Chin-Hong Puah & Josephine Tan-Hwang Yau, 2022. "How Does Population Aging Impact Household Financial Asset Investment?," Sustainability, MDPI, vol. 14(22), pages 1-14, November.
    3. James Banks & Elena Bassoli & Irene Mammi, 2019. "Changing Risk Preferences at Older Ages," Working Papers 2019:01, Department of Economics, University of Venice "Ca' Foscari".
    4. Sandra Castro-González & Sara Fernández-López & Lucía Rey-Ares & David Rodeiro-Pazos, 2020. "The Influence of Attitude to Money on Individuals’ Financial Well-Being," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 148(3), pages 747-764, April.
    5. Matthias Stefan & Martin Holmén & Felix Holzmeister & Michael Kirchler & Erik Wengström, 2022. "You can’t always get what you want—An experiment on finance professionals' decisions for others," Working Papers 2022-02, Faculty of Economics and Statistics, Universität Innsbruck.
    6. Fleck, Johannes & Monninger, Adrian, 2020. "Culture and portfolios: trust, precautionary savings and home ownership," Working Paper Series 2457, European Central Bank.

    More about this item

    Keywords

    Portfolio Choice; Risk Tolerance; Generalized Trust;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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