ABSTRACT
In a novel experimental design, we investigate the impact of exogenous variation in economic growth and inequality on trusting behaviour. In addition to a control with uniform endowment, three treatments were implemented where the initial endowment is exogenously changed to produce inequality and three growth scenarios where average endowments increase (boom), decrease (recession) or remain unaltered (steady state). We find that aggregate trust and trustworthiness both decrease due to the induced heterogeneity in endowments. Also, trust (but not trustworthiness) decreases (increases) due to recessions (booms). The impact of inequality on trust is greatest in a recession and absent in a boom. These aggregate effects are driven mainly by the reactions of those who, after treatment, end up at the bottom of the endowment distribution. These findings are close in sign and in the order of magnitude to those reported in observational studies on the relationship between growth, inequality and trust.
ABSTRACT
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, and war) 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 (HORAs) (prudence and temperance) have changed during COVID-19. This methodology allows us to measure model-free HORAs. 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.