Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?*

Abstract

We investigate whether individuals' experiences of macroeconomic outcomes have long-term effects on their risk attitudes, as often suggested for the generation that experienced the Great Depression. Using data from the Survey of Consumer Finances from 1964-2004, we find that individuals who have experienced low stock-market returns throughout their lives report lower willingness to take financial risk, are less likely to participate in the stock market, and, conditional on participating, invest a lower fraction of their liquid assets in stocks. Individuals who have experienced low bond returns are less likely to own bonds. All results are estimated controlling for age, year effects, and a broad set of household characteristics. Our estimates indicate that more recent return experiences have stronger effects, but experiences early in life still have significant influence, even several decades later. Our results can explain, for example, the relatively low stock-market participation of young households in the early 1980s, following the disappointing stock-market returns in the 1970s, and the relatively high participation of young investors in the late 1990s, following the boom years in the 1990s. In the aggregate, investors' lifetime stock-market return experiences predict aggregate stock-price dynamics as captured by the price-earnings ratio.

Who takes Risks When and Why: Determinants of Changes in Investor Risk Taking*

“…Whereas previous studies have documented changes in risk taking, using either field data ( Brunnermeier andNagel 2008 andMalmendier andNagel, 2011) or lab data in reaction to prior gains and losses (Thaler and Johnson, 1990;M. Weber and Zuchel 2005)), our study is the first to identify mediators of such changes (namely changes in subjective risk and return expectations), and to do so for a sample of online investors.…”

“…Weber and Zuchel, 2005;Malmendier and Nagel, 2011). However, it is still an unresolved question what drives such changes in risk taking.…”

(Re-) Shaping Hatred: Anti-Semitic Attitudes in Germany, 1890-2006

“…Our approach is similar to Malmendier and Nagel (2011), who use cohort-specific shocks in the past as a source of identifying variation for present-day behavior. We find that anti-Semitic attitudes are particularly pronounced for ALLBUS respondents who grew up under the Nazi regime.…”

Do Risk Preferences Change? Evidence from Panel Data before and after the Great East Japan Earthquake

“…On the other hand, Eckel et al (2009) and Voors et al (2012) demonstrate decreased risk aversion (i.e., increased risk tolerance) after exposure to Hurricane Katrina and civil con ‡ict in Burundi, respectively. In addition, Malmendier and Nagel (2011) show that early life …nancial experiences are associated with more conservative investing behavior in later life, and Cohn et al(2015) also documents that negative shocks makes …nancial professionals more risk averse in laboratory experiments. Imas (2014) suggests that these inconsistent …ndings can be explained by individuals' di¤erential responses to "realized" versus paper losses.…”