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Risk Aversion and Aging

Last update on: Mar 14 2020
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People tend to become more risk averse as they get older. This paper points out that when the average age of a society increases, the entire society becomes more risk averse. That can affect a number of factors, such as stock market returns, interest rates, foreign policy, and more.

The empirical results indicate that willingness to take risks declines with age once calendar time and cohort effects are taken into account.

The size of this effect is substantial: an increase of 10 years in the median age of a society leads to a reduction in mean willingness to take risks of 0.23 standard deviations, which is equivalent to 2.5% less investment in stocks or about 6% less self-employment.

Such a change amounts to approximately half of the well-documented difference in willingness to take risks between men and women. These findings suggest that societies become considerably more risk-averse as a consequence of population ageing.

 

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