Disability and risk preferences: Experimental and survey evidence from Vietnam

Abstract

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.