Mental health and financial risk attitudes: Panel data evidence from Australia

Abstract

Abstract We examine the impact of mental health on financial risk attitudes using panel data from Australia. In an instrumental‐variables framework that tries to address the endogeneity of mental health, we find that poor mental health can lead to a higher willingness to take risks. Specifically, a standard deviation decrease in mental health leads to a 10.3 percentage point increase in the likelihood of taking financial risks. This finding remains robust across various sensitivity checks and highlights the significant role that mental health plays in risk‐taking preferences in financial matters.

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