Chapter

Housing, Retirement Saving, and Risk Aversion

Gordon L. Clark, Kendra Strauss and Janelle Knox-Hayes

in Saving for Retirement

Published in print January 2012 | ISBN: 9780199600854
Published online May 2012 | e-ISBN: 9780191738104 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199600854.003.0006
Housing, Retirement Saving, and Risk Aversion

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In this chapter we turn to a far more complex issue: the significance attributed by our respondents to the home in which they live for retirement savings. As Smith (2009) and many others have noted, the family home is more than an investment; it is a social marker, an emotional commitment, and a resource. If financial markets and property markets are subject to risk and uncertainty, is the family home a safe haven for storing value? From our research, it would appear that older, higher-income people do believe this to be the case; further, it appears that those who would rely upon the family home for some portion of their retirement do so believing it carries risks that are more “knowable” than those embedded in financial markets. Here, we use a variety of risk metrics to test out people’s risk preferences, including Kahneman and Tversky’s (1979) justly famous prospect theory. If our respondents are more sophisticated than most, their risk preferences are best explained using simple risk metrics not complex representations of risk.

Keywords: risk; housing; pensions

Chapter.  9627 words. 

Subjects: Pensions

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