Locus of control and financial risk attitudes

• Published in: Economic modelling 2018-06, Vol.72, p.122-131
• Main Authors: Kesavayuth, Dusanee, Ko, Kaung Myat, Zikos, Vasileios
• Format: Article
• Language: English
• Subjects: HILDA; Locus of control; Risk attitude
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2018.01.010

An extensive literature in economics investigates the relationship between cognitive abilities and financial risk attitudes. Yet, little is known about the importance of non-cognitive skills for financial risk attitudes. In this study, we focus on one specific non-cognitive skill, namely locus of control, which represents the extent to which an individual believes that life events are outcomes of his/her own actions. Using Australian panel data, we show that locus of control is positively related to the risk attitudes of older individuals who also differ significantly from younger individuals. The observed difference in risk attitudes between the young and the old is found among females but not males. These findings provide new empirical evidence on financial risk attitudes and how they relate to three sources of individual heterogeneity: locus of control, gender, and age group. •We examine the importance of locus of control for financial risk attitudes.•We show that locus of control is positively related to the risk attitudes of older individuals.•The risk attitudes of older individuals differ from those of younger individuals.•The observed difference between the young and the old is found among females.