On the State and Wealth Dependence of Risk Aversion: An Analysis Using Severance Pay Allocation

State- and Wealth-dependence of individual risk preferences are investigated using Italian longitudinal data. Private sector employees' severance pay investments are used to elicit risk aversion. The identification strategy... [ view full abstract ]

State- and Wealth-dependence of individual risk preferences are investigated using Italian longitudinal data. Private sector employees' severance pay investments are used to elicit risk aversion. The identification strategy relies on i) the behavior of workers changing job contract because of legal limits imposed to temporary job renewal; ii) the presence of different income prospects and employment protection associated to different labor contracts. Fixed-Effects estimates show that financial investments - and consequently risk preferences - are not affected by expected wealth modications. Conversely, job protection determines risk attitude pointing for the existence of State-Dependent Relative Risk Aversion.