Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles

52 Pages Posted: 7 May 2021

See all articles by Mika Akesaka

Mika Akesaka

Institute of Social and Economic Research, Osaka University

Peter Eibich

German Institute for Economic Research (DIW Berlin)

Chie Hanaoka

Toyo University

Hitoshi Shigeoka

Simon Fraser University (SFU); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 3, 2021

Abstract

The poor live paycheck to paycheck and are repeatedly exposed to strong cyclical income fluctuations. We investigate whether such income fluctuations affect risk preference among the poor. 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 US, we find that risk preference among the poor relying heavily on Social Security changes around payday. Rather than cognitive decline before payday, the deterioration of mental health and relative deprivation may play a role. We find similar evidence among the Japanese elderly.

Keywords: poverty, risk preference, Social Security, mental health, relative deprivation, elderly, Health and Retirement Survey, Japanese Study of Aging and Retirement

JEL Classification: D81, D91, I32

Suggested Citation

Akesaka, Mika and Eibich, Peter and Hanaoka, Chie and Shigeoka, Hitoshi, Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles (May 3, 2021). Available at SSRN: https://ssrn.com/abstract=3839229 or http://dx.doi.org/10.2139/ssrn.3839229

Mika Akesaka

Institute of Social and Economic Research, Osaka University ( email )

6-1 Mihogaoka
Ibaraki city, Ibaraki, Osaka 5670047
Japan

Peter Eibich

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Chie Hanaoka

Toyo University

Tokyo
Japan

Hitoshi Shigeoka (Contact Author)

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
(778)782-5348 (Phone)
(778)782-5348 (Fax)

HOME PAGE: http://sites.google.com/site/hshigeoka/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
29
Abstract Views
212
PlumX Metrics