HOUSEHOLD DEBT AND ATTITUDES TOWARD RISK

We explore the relationship between attitudes toward risk and the level of debt at the household level for a sample of households drawn from the U.S. Panel Study of Income Dynamics (PSID) over the period 1984 to 2007. Using a sequence of questions from the 1996 PSID, we analyze the implications of interpersonal differences in attitudes toward risk for the accumulation of unsecured debt, secured debt, and total debt at the household level. Our empirical findings suggest that attitudes toward risk are an important determinant of the level of debt acquired at the household level with risk aversion being inversely related to the level of debt accumulated by households.