Risk Attitudes and Conflict in the Household

Abstract

Abstract Risk attitudes determine decision making by individuals. Theoretically, heterogeneity in risk attitudes also affects household behaviour, increasing or decreasing marital instability, depending on whether households benefit primarily from sharing public goods or risk. Using a nationally representative sample with repeated measurements of risk attitudes, this paper shows that intrahousehold heterogeneity in risk attitudes is an economically and statistically significant predictor of future marital instability. Consistent with models of public good sharing, preference heterogeneity is associated with less public good sharing. Furthermore, risk attitudes converge within stable households over time. These findings highlight the empirical relevance of risk attitudes in explaining household behaviour.