Household risk taking after the financial crisis

• We study how the crisis in 2008/2009 affects households’ willingness to take risks.
• The German SAVE study requested wealth changes attributed to the crisis.
• Total wealth change unrelated to changes in the willingness to take risks.
• Attributing losses to the crisis decreases the willingness to take risks.
• The result suggests an emotional reaction.

This study investigates whether and how the crisis in 2008/2009 affects households’ risk attitudes, subjective risk and return expectations, and planned financial risk taking using the German SAVE study. Households’ wealth change from end-2007 to end-2009 is not found to have an effect. However, households that attribute losses to the crisis decreased their risk tolerance and planned risk taking; the probability of expecting an increase in risks and returns is increased. According to economic theory, wealth changes attributed to a dramatic event should not have a different effect than other wealth changes. The results suggest an emotional reaction.