American Economic Journal: Applied Economics
no. 4, October 2023
The poor live paycheck to paycheck and are repeatedly exposed to strong cyclical income fluctuations. We investigate whether such income fluctuations affect their risk preference. If risk preference temporarily changes around payday, optimal decisions made before payday may no longer be optimal afterward, which could reinforce poverty. By exploiting social security payday cycles in the United States, we find that the poor relying heavily on social security become more risk tolerant before payday. More than cognitive decline before payday, the deterioration of mental health and relative deprivation are likely to play a role. We find similar evidence among the Japanese elderly.
Akesaka, Mika, Peter Eibich, Chie Hanaoka, and Hitoshi Shigeoka.
"Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles."
American Economic Journal: Applied Economics,
Criteria for Decision-Making under Risk and Uncertainty
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
Household Finance: Household Saving, Borrowing, Debt, and Wealth
Measurement and Analysis of Poverty
Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
Wage Level and Structure; Wage Differentials