Eyal Lahav

Don’t fear risk, learn about it: how familiarity reduces perceived risk

ABSTRACT This article suggests that learning about basic concepts concerning the risk and return of assets will reduce perceived risk. We show experimentally that people who learn about these basic concepts are willing to allocate more money to risky assets and consider the asset’s return relative to its risk.

Don’t Let Them Fool You: Adolescents’ Present-orientation and Inferior Financial Understanding

In the last 20 years, adolescents have gradually become very important clients for the banking industry. The current study investigates, using data collected in a survey, whether adolescents offered two options for investing in a saving certificate choose the financially preferable one and whether this choice is related to their time preference, after controlling for gender and bank account ownership. The participants were 270 adolescents from public high schools in Israel. The findings indicate that approximately 40 per cent made the inferior financial decision. However, those with a bank account were less likely to decide poorly, possibly indicating that having an account reduces financial illiteracy. Moreover, selecting the financially inferior choice correlates with a higher subjective discount rate (higher present-orientation). A gender effect is also found; girls have higher subjective discount rates, and this effect is stronger for girls with a bank account. Policy implications regarding financial education programmes are discussed.

Emotions, Risk Perceptions and Precautionary Actions of Citizens During a Military Operation Using a New Defence Technology: The Israeli Case of the Iron Dome

Abstract The current field study used unique data collected in Israel in July 2014, during a military operation that the Israel Defence Forces (I.D.F.) conducted in the Gaza Strip, in reaction to the thousands of missiles launched from there into Israel. During this operation, the new Iron Dome anti-missile defence system was used to protect Israelis exposed to missile attacks. The study examined factors that correlate with decisions to comply with I.D.F. defence instructions regarding behaviour during missile attacks. In addition, the study examined the relationship between attitudes towards the Iron Dome technology and emotions, risk perceptions, and the decision to comply with I.D.F. defence instructions. The results indicate that stronger positive opinions towards Iron Dome were correlated with lower levels of fear and anger, and beliefs that participant’s chances of being injured by a missile were lower than they had been during previous military operation. In addition, better compliance with I.D.F. defence instructions correlated with being more fearful, angrier at Hamas, living closer to Gaza Strip, and having more positive opinions about Iron Dome. The findings also indicate gender differences with respect to factors correlated with risk perceptions, opinions regarding Iron Dome, and precautionary actions during attacks.

Disentangling trust from risk-taking: Triadic approach

The willingness to trust human receivers is compared to the inclination to take lottery risk in six distinct scenarios, controlling the return distributions. Trust shows significantly smaller responsiveness to return expectations compared to parallel pure-risk lottery allocation, and paired comparisons reveal that investors sacrifice 5% of the expected payoff to trust anonymous receivers. Trust is more calculated and volatile for males, while appearing relative stable for females. The results complement the accumulating evidence regarding physiological differences between trust and risk, in addition suggesting that the trust-risk gap is larger for females.

Debt composition and lax screening in the Israel corporate bond market

Corporate bond markets may suffer from investors’ lack of competence in screening out low-quality issuers. We use data from the Israeli capital market in 1999–2009 to investigate the quality of corporate bond issuers and the role of the institutional investors in the screening process in the corporate bond market. The findings suggest that higher quality firms were more likely to issue bonds, but firms of lower quality tended to raise a higher fraction of their debt through bond issuance. Firms with higher proportion of their debt in bonds out had also a higher tendency to default. Institutional investors intensively funded firms with higher share of bonds in their long-term debt despite their lower quality, and therefore were partially responsible for the lax screening in the corporate bond market.