Do sources of money matter in risk-taking behaviour?

ABSTRACT

Assuming that money is fungible, income and wealth affect risk aversion. In the present study, we investigate whether the source of money affects risk-related decision-making. We use the percentage of temporary income and sources of income to capture the heterogeneity of risk-taking behaviour. The results indicate the significant and robust role of the temporary portion of income in explaining risk-taking behaviour: a 1% increase in temporary income corresponds to up to a 12.7% increase in risk-taking. Furthermore, having multiple sources of money is associated with greater risk-taking, and the origin of money matters with regards to risk-taking.

KEYWORDS:

• Risk-taking - risk aversion - financial decision-making - source of income

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Probably, sources of income also drive risk-taking through anticipation of regret. See Gajewski and Ohadi (2021) for a precise analysis of the link between risk-taking and anticipation of regret.

² The exact question asked ‘Suppose that you are the only income earner in the family, and you have a good job guaranteed to give you your current (family) income every year for life. You are given the opportunity to take a new and equally good job, with a 50–50 chance it will double your (family) income and a 50–50 chance that it will cut your (family) income by a third. Would you take the new job?’ (Barsky et al. 1997)

³ For an exhaustive review of the literature on mental accounting, see Zhang and Sussman (2018).

Additional information

Funding

This work was supported by the Université Savoie Mont Blanc; Odonatech; Université de Lyon [ANR-16-IDEX-0005].