Discussion paper

DP16234 Life-Cycle Risk-Taking with Personal Disaster Risk

This paper examines households' self-insurance in financial markets when a rare personal disaster, such as disability or long-term unemployment, may occur during working years. Personal disaster risk alters lifetime ex-ante investment choices, even if most workers will not experience a disaster. Uncertainty about the size of human capital losses, which characterizes rare disasters, results in lower risk-taking at the beginning of working life, and is crucial in order to match the observed age profiles of US investors from 1992 to 2016.


Bagliano, F, C Fugazza and G Nicodano (2021), ‘DP16234 Life-Cycle Risk-Taking with Personal Disaster Risk‘, CEPR Discussion Paper No. 16234. CEPR Press, Paris & London. https://cepr.org/publications/dp16234