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Divorce as risky behavior.

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  • 1Department of Economics, Ohio State University, Columbus, OH, USA. light.20@osu.edu

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Higher risk tolerance increases divorce probability, especially for women, as divorce presents a significant financial gamble. This study explores how individual risk-taking influences marital dissolution decisions.

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Area of Science:

  • Behavioral Economics
  • Family Economics
  • Sociology of the Family

Background:

  • Divorce is often characterized as a high-stakes financial decision.
  • Traditional divorce models do not fully account for individual risk tolerance.
  • Marriage and divorce are inherently risky endeavors with significant financial implications.

Purpose of the Study:

  • To investigate the impact of individual risk tolerance on the decision to divorce.
  • To extend the orthodox divorce model by incorporating risk aversion and the varying risks of marriage and divorce.

Main Methods:

  • Developed an extended divorce model assuming risk-averse individuals and risky marriage/divorce scenarios.
  • Utilized data from the 1979 National Longitudinal Survey of Youth (NLSY) for first-married individuals.
  • Employed a probit model to estimate the probability of divorce, including risk tolerance as a covariate.

Main Results:

  • Increased risk tolerance is positively associated with a higher probability of divorce.
  • A 1-point increase in risk tolerance raises the predicted divorce probability by 4.3% for men and 11.4% for women.
  • The findings suggest divorce represents a greater income gamble for women than for men.

Conclusions:

  • Individual risk tolerance is a significant factor influencing marital dissolution.
  • Risk-averse individuals require greater compensation for the inherent risks associated with divorce.
  • The differential impact of risk tolerance on divorce probability highlights gendered financial risks in marital breakdown.