Higher Order Risk Attitudes in the Time of COVID-19: An Experimental Study

The coronavirus disease (COVID-19) represents a large increase in background risk for individuals. Like the COVID-19 pandemic, extreme events (e.g. financial downturns, natural disasters, war and conflict) have been shown to change attitudes towards risk. Using a risk apportionment approach, we examine whether risk aversion as well as higher order risk attitudes (prudence and temperance) have changed during COVID-19. This methodology allows us to measure model-free higher order risk attitudes. We include prudence and temperance as higher order measures, as these two have been largely understudied under extreme events but are determinants of decisions related to the health and financial domains. Once we account for socio-demographic characteristics, we find an overall increase in risk aversion during COVID-19. We also find similar results using a hypothetical survey question which measures willingness to take risks. We do not find changes in prudence and temperance using the risk apportionment methodology.