Working Paper

Financial Risk-Taking under Health Risk

Björn Bos, Moritz A. Drupp, Jasper N. Meya, Martin F. Quaas
CESifo, Munich, 2023

CESifo Working Paper No. 10387

We study how background health risk affects financial risk-taking. We elicit financial risk-taking behavior of a representative sample of more than 5,000 Germans in five panel waves during the COVID-19 pandemic. Exploiting variation in local infections across time and space, we find that an increase in infections affecting background health risk translates into higher levels of self-reported fear and decreases financial investments in a risky asset. Once vaccines become available as a self-insurance device, the tempering effect on investments ceases. Our results provide evidence that non-financial background risks affect financial risk-taking, and for the alleviating effect of self-insurance devices.

CESifo Category
Empirical and Theoretical Methods
Behavioural Economics
JEL Classification: D140, D910, G110, G410, G510