Time Varying Risk Aversion

Luigi Guiso, Paola Sapienza, Luigi Zingales

Research output: Working paper


We use a repeated survey of an Italian bank’s clients to test whether investors’ risk aversion increases following the 2008 financial crisis. We find that both a qualitative and a quantitative measure of risk aversion increase substantially after the crisis. This increase is present even among investors who did not suffer any financial loss and are unlikely to have suffered a reduction in their lifetime income. Hence, we hypothesize that this increase might be an emotional response triggered by a scary experience. To test this hypothesis we resort to a lab experiment. Consistent with a fearbased explanation, we find that subjects who watched a horror movie exhibit a higher risk aversion than subjects who did not. The size of the increase in risk aversion caused by the horror movie is similar to the one experienced by our bank’s clients during the crisis.
Original languageEnglish (US)
Number of pages40
StatePublished - Jul 2015

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