Household Expectations for Future Economy and Risk-Taking Attitudes

Abstract

The purpose of this study is to examine factors associated with households’ willingness to take financial risks, particularly the effect of households’ expectations. The data used in this study are the Survey of Consumer Finances 2007 by which researchers can examine the household financial issues before the financial crisis. By employing multinomial logit regression, the new finding of this study is that when the households expect that the future economy will be better, they are not willing to take either no or substantial financial risk. This study uses the uncertainty theory with the timing of the survey to interpret this seemingly unintuitive result. Other findings are that age, more working people in a household, male, education, and majority race are household characteristics positively affecting the probability of the household’s willingness to take average and above average financial risks.