Essays on the effects of childhood experiences on household decision making

Antti Lehtoranta

Research output: ThesisDoctoral ThesisCollection of Articles

Abstract

This dissertation studies the effects of personal experience on household decision making. I gauge personal experiences using a novel measure: the childhood experience of father's job loss. This measure is appealing for the following reasons. First, father's job loss constitutes a salient experience that is likely to be remembered for years to come. Second, the experience directly relates to the perceived riskiness of labor income, the most important source of income for the majority of households. Third, the experience can be directly observed at the level of an individual in public datasets such as the PSID and HRS. Fourth, childhood experiences are in most cases determined decades before the adult household outcomes. As a result, the effects of these experiences are less susceptible to omitted variable problems than the effects of adult experiences. The first essay examines the effect of childhood experiences on the adult likelihood of participating in the stock market. I find that the experience of father's job loss reduces stock market participation by 2.9 percentage points in a sample where the mean stock market participation rate is 17%. The second essay studies the effects of the experience on household debt. The childhood experience of father's unemployment predicts 17% lower debt levels and 10% lower debt-to-income ratios|even though the sample consists by construction only ofnear- or already retired households. The third essay finds that the childhood experience of father's job loss is associated with a 2.4-percentage-point lower likelihood of being an entrepreneur in a sample where the mean entrepreneurship rate is 11%. The childhood experience of father's job loss should influence the formation of beliefs and risk attitudes only if the job loss is involuntary. As a pseudo-placebo test, I estimate the effect of the childhood experience of father quitting from his job voluntarily. As expected, I find no statistically significant effect for this experience. Father's job loss should have about the same effect on family life regardless of the age of the children. However, experiences gained at a very young age are probably neither memorized nor fully understood, and should therefore have little effect on the formation of beliefs and risk attitudes. As another pseudo-placebo test, I examine whether very early experiences influence later household choices. As expected, I find no evidence of such effects.
Translated title of the contributionEssays on the effects of childhood experiences on household decision making
Original languageEnglish
QualificationDoctor's degree
Awarding Institution
  • Aalto University
Supervisors/Advisors
  • Keloharju, Matti, Supervising Professor
Publisher
Print ISBNs978-952-60-6352-2
Electronic ISBNs978-952-60-6353-9
Publication statusPublished - 2015
MoE publication typeG5 Doctoral dissertation (article)

Keywords

  • personal experience
  • job loss
  • stock market participation
  • household debt
  • entrepreneurship

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