Financial Risk-Taking under Health Risk

We study how background health risk affects financial risk-taking. We elicit financial risk-taking behavior of a representative sample of more than 5,000 Germans in five panel waves during the COVID-19 pandemic. Exploiting variation in local infections across time and space, we find that an increase in infections affecting background health risk translates into higher levels of self-reported fear and decreases financial investments in a risky asset. Once vaccines become available as a self-insurance device, the tempering effect on investments ceases. Our results provide evidence that non-financial background risks affect financial risk-taking, and for the alleviating effect of self-insurance devices.