The likelihood of divorce and the riskiness of financial decisions

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URI: http://hdl.handle.net/10900/89999
http://nbn-resolving.de/urn:nbn:de:bsz:21-dspace-899998
http://dx.doi.org/10.15496/publikation-31380
Dokumentart: Aufsatz
Date: 2019-07-02
Source: University of Tübingen Working Papers in Economics and Finance ; No. 121
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Ehescheidung , Risiko , Wahrscheinlichkeit
Other Keywords:
Men’s preferences towards risk
Risk-taking behavior
Concern at having low relative wealth
Relative and absolute risk aversion
Marital-based difference in attitudes towards risk
Likelihood of divorce
License: Publishing license excluding print on demand
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Abstract:

We link causally the riskiness of men’s management of their finances with the probability of their experiencing a divorce. Our point of departure is that when comparing single men to married men, the former manage their finances in a more aggressive (that is, riskier) manner. Assuming that single men believe that low relative wealth has a negative effect on their standing in the marriage market and that they care about their standing in that market more than married men do, we find that a stronger distaste for low relative wealth translates into reduced relative risk aversion and, consequently, into riskier financial behavior. With this relationship in place we show how this difference varies depending on the “background” likelihood of divorce and, hence, on the likelihood of re-entry into the marriage market: married men in environments that are more prone to divorce exhibit risk-taking behavior that is more similar to that of single men than married men in environments that are little prone to divorce. We offer a theoretical contribution that helps inform and interpret empirical observations and regularities and can serve as a guide for follow-up empirical work, having established and identified the direction of causality.

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