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HOUSEHOLD DEBT AND ATTITUDES TOWARD RISK

Authors


  • Note: We are grateful to the Institute for Social Research, University of Michigan for supplying the Panel Study of Income Dynamics 1968 to 2007. We are especially grateful to two anonymous referees, the editor, and Professor Peter Simmons for valuable advice, to Dr Aurora Ortiz for excellent research assistance, and to participants at the European Economics Association Annual Conference, Milan, August 2008, and the Royal Economic Society Annual Conference, Royal Holloway, London, 2011, for excellent comments. The normal disclaimer applies.

Sarah Brown, Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, UK (sarah.brown@sheffield.ac.uk).

Abstract

We explore the relationship between attitudes toward risk and the level of debt at the household level for a sample of households drawn from the U.S. Panel Study of Income Dynamics (PSID) over the period 1984 to 2007. Using a sequence of questions from the 1996 PSID, we analyze the implications of interpersonal differences in attitudes toward risk for the accumulation of unsecured debt, secured debt, and total debt at the household level. Our empirical findings suggest that attitudes toward risk are an important determinant of the level of debt acquired at the household level with risk aversion being inversely related to the level of debt accumulated by households.

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