Periodic Reporting for period 4 - RDRECON (Risky Decisions: Revealing Economic Behaviour)
Okres sprawozdawczy: 2019-11-01 do 2020-12-31
The research team looked into how individuals and households are affected by financial market experiences. Initially, we looked at how the dramatic financial events under the latest financial crisis in 2008-2010 affected individuals' financial investment decisions. We then examine how the loss of investments through bank defaults and individuals' investments in these banks leads to subsequent behavior changes. Continuing in this path, we then looked into how financing and refinancing of housing are affected by different households and individual characteristics - how individuals' choices affect savings and optimality of financial decisions – for example, how this differs by gender. We use these findings the financial, macroeconomic policies can transfer differently to different demographics groups because they behave sub-optimal.
The research team then turned more into the core of the search project – to look at how core preferences and beliefs of individuals and households channels through to how they make financial decisions. We developed and estimated types of choice models of inertia and refinancing choices to examine how. A highly non-linear model, On this type of model, we build and estimate a loss aversion model in the housing market. This extended model estimates the importance of loss aversion in the propensity to sell houses, a deep parameter of high importance for macroeconomic policy and labor market mobility.
Prof. Kasper Meisner Nielsen and I then looked at how individuals and households are affected by financial market experiences. Initially, we looked at how the dramatic financial events under the latest financial crisis in 2008-2010 affected individuals' financial investment decisions. We then examine how the loss of investments through bank defaults and individuals' investments in these banks leads to subsequent behaviour changes. We investigated this in the article "Once Bitten, Twice Shy: Do Personal Experiences or Wealth Changes Affect Risk-Taking," Journal of Financial Economics 132 (3), 97-117. June 2019.
We then turned more into the core of the search project – to look at how core preferences of individuals and households channels through to how they make financial decisions. In "Sources of inaction in household finance: Evidence from the Danish mortgage market," American Economic Review. 2020, 110(10), 3184-3230, we developed and estimated types of choice models of inertia and refinancing choices. A highly non-linear model, designed to explain heterogeneity in refinancing choices, takes months to estimate the standard hardware (i.e. servers) at Statistic Denmark. On this type of model we build a model of loss aversion in the housing market in "Reference Dependence in the Housing Market," 2019. This extended model estimates the importance of loss aversion in the propensity to sell houses, a deep parameter of high importance for macroeconomic policy.
The research conducted under the past ERC starting grant is part of an ongoing research agenda that exploits administrative register data on households' financial decisions in Denmark –research agenda our team will keep exploiting. With already four top publications (2x AER, 1 JFE, 1MS) and two excellent journal articles (EJ and JMCB), 1 top revise and resubmit at AER, and 2-3 top economic publications coming out of this project, I very pleased with our performance. Additionally the grant allowed spillovers to two other field publications, which I expect more publications to come from in the future from this grant. We disseminated this at several conferences and workshops.