Can Risk Averse Households Make Risky Investments? The Role Of Trust In Others

Using two waves of the Survey on Health, Ageing and Retirement in Europe (SHARE, 2006-2013), this paper sheds light on the role jointly played by individuals’ financial risk attitude and their willingness to trust others in influencing risky assets investments. We observe large variation in risk attitude and trust and we show that risky assets investments are more frequent and larger in households featuring either risk tolerance or (to a smaller extent) a combination of risk aversion and trust. Trust thus acts as an imperfect substitute for risk tolerance. Our findings have implications for understanding heterogeneity in household financial decisions.