DESPERATION OR DESIRE? THE ROLE OF RISK AVERSION IN MARRIAGE

I. INTRODUCTION Attitudes toward risk are an important determinant of a vast array of decisions. Such decisions include ones with a big impact on life: the choice of education, the choice of career, investment decisions, and even when and if to get married or divorced. Most empirical studies of behavior implicitly assume risk preferences are identical across households. Such a research strategy undoubtedly results in appreciably different predictions of behavior than would occur if risk preferences are permitted to vary. While an increasing number of surveys are asking respondents questions that allow for construction of a measure of interpersonal variation in risk that is based on economic theory, there is still a paucity of empirical studies that explicitly investigate the impact of risk preferences on behavior. (1) I use information on risk preferences from the National Longitudinal Survey of Youth 1979 (NLSY79) to predict how interpersonal variation in these preferences affects the time to marriage decision. Because of the uncertainty inherent in searching for a partner and the uncertainty of the future quality and state of the marriage itself, risk attitudes likely directly impact the timing of marriage. Risk preference variables are constructed from a series of hypothetical gambles over lifetime income that were offered to respondents in the NLSY79. I examine how the risk preference variables affect the hazard rate into marriage and find that the more risk averse marry sooner, l also exploit sibling data from the NLSY79 to examine the robustness of the empirical results by controlling for unobserved family effects that might be correlated with risk attitudes and find qualitatively similar results. In addition, I find that risk preferences affect the timing of marriage differentially for the sexes, with a larger and more statistically significant effect of risk preferences on the hazard rate into marriage for men. One possible explanation for this finding is that women value risk aversion as a desirable characteristic in a spouse. To explore this possibility, I analyze spouse characteristics by the risk aversion of the respondent. I find that spouse quality, in terms of education and other measurable traits, is generally lower for more risk averse men than for more risk-loving men. This finding is in accordance with a prediction of a search model: the reservation "price" is decreasing in risk aversion. Spouse quality of more risk averse women is usually but not always lower than for more risk-loving women, suggesting that the effect of a woman's own risk aversion on time to marriage may be more complex than suggested by a search model. Overall, the results suggest that risk preferences have some causal influence on the timing of marriage, whether it be from a supply-side standpoint, such as in the case of a basic search model, or from a demand-side standpoint, where risk aversion is a desirable trait. This article contributes to a sparse literature that employs empirical measures of risk aversion. Many of these studies ask how demographic characteristics affect risk attitudes. (2) A few ask how these measures of risk aversion affect behaviors like the propensity to smoke or invest in risky assets. (3) These studies are, however, cross sectional and do not employ survival analysis as does this article. To my knowledge, only two existing studies (Light and Ahn, 2008; Schmidt, 2008) employ an empirical measure of risk aversion to investigate the relationship between risk preferences and the marriage market. Schmidt focuses on fertility but also considers marital timing of employed women, and Light and Abn focus on divorce timing. The findings of both studies are consistent with mine. (4) My study adds to Schmidt's by considering all women and men and exploring the differences between the genders, including a discussion of how spousal characteristics might differ by the risk aversion of respondents. …