Mental Health Changes and the Willingness to Take Risks

We analyze the impact of mental health changes on individuals' willingness to take risks utilizing the nationally representative, longitudinal Socio Demographic Panel dataset of the German population. We employ regression-adjusted matching to identify the impact of mental health changes on individuals' willingness to take risks. We find that mental health shocks significantly decrease the willingness to take risks. The impact is at least three times as high as that of physical health shocks. We also find that mental health improvements increase the willingness to take risks significantly, while physical health improvements have a similar, but weaker effect. We also use the onset of diagnosed depression as an alternative definition for mental health shocks and obtain very consistent results. Our findings are relevant for better understanding the economic decision making of the large number of individuals with mental health issues. Our results also provide empirical support for the theoretical concepts of cross-DARA and cross-prudence