Does the COVID-19 pandemic change individuals’ risk preference?

In this study we exploit not only regional but also age and gender variation in exposure to COVID-19 to investigate its impact on risk tolerance. This study is the first to use age and gender variation in exposure to COVID-19, whereas the identification in previous studies relied on regional variation or simple differencing before and after the pandemic. Using a nationally representative household panel survey in Japan, we find that individuals who were exposed to higher risk of COVID-19, measured by the mortality rate, became more risk-tolerant. The result is in line with findings whereby the experience of standout adverse events and the large resulting losses increase individuals’ risk tolerance. However, the effect appears diminished after the vaccine rollout. An analysis using detailed vaccine records indicates that the vaccination offset the increase in risk tolerance due to the mortality risk, especially for individuals with a higher mortality rate for COVID-19. While the literature on this topic has been inconclusive with a few studies reporting insignificant changes in risk tolerance after the pandemic, our result suggests that granular information on exposure to COVID-19 helps identify its impact.