Using German panel data, we assess the causal effect of job loss, and thus of
an extensive income shock, on risk attitude. In line with predictions of
expected utility reasoning about absolute risk aversion, losing one’s job
reduces the willingness to take risks. This effect strengthens in previous
hourly wage, begins to manifest itself as soon as an employee perceives the
threat of job loss and is of a transitory nature. The change in stated risk
attitude matches observable job finding behaviour, confirming the behavioural
validity of our results
