The effects of health shocks on risk preferences : Do personality traits matter?

Older individuals hold a disproportionate amount of total wealth, and are particularly vulnerable to shocks to health. Accordingly, there is a interest in understanding the extent to which health detriments influence financial choices and portfolio holdings within this group of society. A separate strand of literature has recently focused on the role of non-cognitive skills, and in particular personality traits, in shaping attitudes towards risk. We combine these literatures to explore the extent to which unanticipated shocks to health display heterogeneous impacts on preferences towards financial risk via portfolio investments and stock market participation. We find that health shocks have a negative effect on the level of risk at the household level when men, but not women, experience the shock. Moreover, there appears to be heterogeneity in the response by personality trait. Households where men display dominant traits for neuroticism, extraversion and openness to experience tend to be most affected in investment decisions following a health shock. The household becomes less risk tolerant when the level of neuroticism or openness increases, and more risk tolerant when the level of extroversion of the man increases.