DISABILITY AND RISK PREFERENCES: EXPERIMENTAL AND SURVEY EVIDENCE FROM VIETNAM

Abstract

We investigate whether experiencing a disability incidence in the household affects economic risk preferences in Vietnam, leveraging (i) ten years of individual-level panel data and (ii) data from a lab-in-the-field experiment. We find that individuals who experience a disability event in the household behave in a more risk-averse manner than individuals without such an experience. Examining potential underlying mechanisms, we demonstrate that a household disability shock leads to lower wealth, which in turn is related to higher levels of risk aversion. Furthermore, we provide evidence that cognitive mechanisms—fearful emotions and the updating of beliefs (becoming more pessimistic about the future)—are another, perhaps even more important channel through which disability shocks affect risk preferences.