Prof. Hitoshi Shigeoka’s co-authored paper “Temporal Instability of Risk Preference among the Poor: Evidence from Payday Cycles” was published in the American Economic Journal: Applied Economics Vol. 15, Issue 4.
This paper is co-authored by Dr. Mika Akesaka, Dr. Peter Eibich, and Dr. Chie Hanaoka.
The poor live paycheck to paycheck and are repeatedly exposed to strong cyclical income fluctuations. We investigate whether such income fluctuations affect their risk preference. If risk preference temporarily changes around payday, optimal decisions made before payday may no longer be optimal afterward, which could reinforce poverty. By exploiting social security payday cycles in the United States, we find that the poor relying heavily on social security become more risk tolerant before payday. More than cognitive decline before payday, the deterioration of mental health and relative deprivation are likely to play a role. We find similar evidence among the Japanese elderly.