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Zoom URL: https://uni-frankfurt.zoom.us/j/64332372468?pwd=MnFoWFlPUlJQZk9KN01TWHhIK0NOQT09
Meeting ID: 643 3237 2468
The paper examines the effect of an unprecedented, widespread, and life-threatening experience on risk-taking behavior focusing on the case of the COVID-19 pandemic. We conducted an online questionnaire of a diverse sample of subjects (total n = 1643) based on Holt and Laury's (2002) risk-tolerance measure in 7 different time points - before the pandemic, during each of its first four waves, and in additional two periods in which the restrictions were completely removed. The data demonstrates that a major life experience significantly reduces financial risk-taking. While the objective financial situation seems to deteriorate as the crisis became more severe, the observed decrease in risk-tolerance was the most apparent in the 1st wave, with no major differences between the three waves of the pandemic. In addition, with the removal of restrictions, the level of risk-tolerance did not return to its pre-pandemic state but began a slow and gradual return process. The variance in the risk-tolerance of individuals was highest before the pandemic and lowest in the 3rd wave. Moreover, we find no connection between the objective measure of financial risk and subjective tolerance towards risk during the pandemic. This finding suggests that changes to risk tolerance are highly affected by contextual and emotional considerations. Finally, we discuss our results in light of the risk seeking behavior of investors in commission-free online brokerage like Robinhood during COVID-19 and provide guidelines for policy implications.