The Effect Of An Unexpected Wealth Shock On Willingness To Takes Risks

Abstract

In this thesis we investigate how an exogenous wealth shock in the form of an unexpected inheritance or gift affects individuals' self-reported willingness to take risks. We apply a quasi fixed effects ordered probit model using the large panel data set from the German Socio-economic Panel (SOEP), which enables us to control for observed and unobserved individual characteristics. Our results suggest that an unexpected wealth shock affects willingness to take risks negatively. Furthermore, these findings contradict the assumption of constant relative risk aversion.