How Does Depression Influence Risk-Taking?

Reduced productivity from depression and anxiety costs more than US$1 trillion each year globally. Less understood are the impacts on day-to-day decisions. Many decisions involve an element of risk. Sometimes taking risks is good (e.g., product innovation), but it can also involve personal and social costs (e.g., an unhealthy lifestyle). Deborah Cobb-Clark, Sarah Dahmann, and Nathan Kettlewell sought to answer: Are the people who are depressed more or less risk-taking than those who are not?

To answer this, they used a large representative German data set. The team first focused on people’s “risk preferences”—their general proclivity towards risk. Experimental economists measure this through choices between safer or riskier lotteries (behavioral preferences). Another approach is to simply ask people how willing they are to take risks (stated preferences), in general and across specific areas like health.

They found people prone to depression had the same behavioral preferences as the nondepressive, but different stated preferences. Importantly, differences in stated preferences were context specific. People prone to depression were less risk-willing in general and socially, but more willing to take risks in health and finance.

Differences in actual risk-taking in these areas (e.g., buying insurance, diet, exercise, lending) generally showed the same patterns. These differences were substantially smaller or completely disappeared when controlling for behavioral traits like locus of control and optimism.

While the cause of these differences is unclear, the results provide new evidence on how depression may be influencing economic and social decision making. In some cases, these decisions could be exacerbating the costs of this disorder, for example, by the people with depression underinsuring and making less healthy lifestyle decisions.

The results also have implications for classification and treatment. Kettlewell: “We reject any notion that people with depression are more or less risk-taking in general. Instead, our results tell a more varied and nuanced story.”

Read the study in the Journal of Human Resources: “Depression, Risk Preferences and Risk-Taking Behavior,” by Deborah A. Cobb-Clark, Sarah C. Dahmann, and Nathan Kettlewell.

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Deborah A. Cobb-Clark is at School of Economics, The University of Sydney; ARC Centre of Excellence for Children and Families over the Life Course; and Institute of Labor Economics (IZA). Sarah C. Dahmann is at Melbourne Institute: Applied Economic & Social Research, The University of Melbourne; ARC Centre of Excellence for Children and Families over the Life Course; and Institute of Labor Economics (IZA). Nathan Kettlewell (@NathanKettlewe1) is at Economics Discipline Group, University of Technology Sydney; ARC Centre of Excellence for Children and Families over the Life Course; and Institute of Labor Economics (IZA).

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