Financial risk attitudes and aging in Australia

A number of empirical studies document that people tend to become more risk averse as they get older. But other studies find only little evidence that age matters for financial risk attitudes. This prompts a call for revisiting the relationship between age and risk attitude to better support policy recommendations. The current paper contributes to this effort by utilising large-scale population data to conduct a dynamic panel analysis. Care is taken to avoid the problem of endogeneity of lagged risk attitude in modelling its effects. Analysis reveals that individuals' past risk attitude has a positive effect on their current risk attitude. However, there is only little evidence that risk attitude and age are systematically related. Our results shed some light on the previous contradictory empirical findings in the literature and suggest that past risk attitude is potentially of greater relevance than chronological age in determining current risk attitude.