Relationship between personal debt arrears and risk attitude - cross country evidence

Abstract

Purpose: The paper's objective is to compare differences between people from four European countries in terms of however having or never having debt difficulty is related to risk attitude. Design/Methodology/Purpose: This paper aims to check however having or never having debt arrears is related to risk attitude. The hypothesis put forward is that independently of country, people who have never been in debt arrears are less risk-seeking than people who have ever had arrears; however, the differences in risk aversion between indebted and not indebted individuals are not equal among the nationalities examined. Findings: The hypothesis advanced was confirmed. It can be observed that people who have never had debt arrears are more risk-averse in most cases. In each country, the group of respondents with problems repaying debt rated themselves higher in terms of being a risk-taker and more open to risk than other people. However, the ratings differed in their levels across the different countries. Moreover, in each country, people with debt arrears when asked to give someone advice on investment were more likely to choose the risky option, but the percentages differed among countries. Practical Implications: Present and past debtors are not the same in terms of risk attitude, and sometimes even past debtors resemble more non-debtors in risky behavior Originality: The article results from a large-scale survey (the smallest sample consisted of 802 subjects, the biggest of 1200) conducted in Spain, Italy, Poland, and Romania regarding the emergence of overdue debt.