The long-run impact of a traumatic experience on risk aversion

• Published in: Journal of economic behavior & organization Vol. 108; pp. 174 - 186
• Main Authors: Kim, Young-Il, Lee, Jungmin
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.12.2014; Elsevier Sequoia S.A
• Subjects: Attitudes; Childhood experience; Civil war; Civilians; Cohorts; Decades; Identification; Individuals; Korea; Korean War; Risk aversion; Risk management; Sensitive period; Social impact; Studies; Trauma; D74; Risk aversion; Korean War; Sensitive period; Civil war; Childhood experience; D81
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2014.09.009

•We examine the long-run impact of exposure to a traumatic event on risk attitudes.•We exploit variation in war intensity by cohort and region during the Korean War.•We identify the sensitive period of risk attitude formation.•Exposure to war between the ages of 4 and 8 permanently increases risk aversion. We examine the long-run impact of exposure to a traumatic event on risk attitudes. We estimate risk aversion of those who experienced the Korean War at different ages to identify a sensitive period for risk attitude formation. This major war broke out suddenly, and the impact of the war on civilians was substantial but limited to a brief period of time. The results reveal that individuals who were 4–8 years old during the peak of the war are more risk averse about five decades later. Furthermore, within the affected cohorts, those who resided in more severely damaged provinces are more risk averse.