Does time heal all wounds? Psychological responses to trauma and financial risk‐taking

Abstract

We study whether psychological responses to trauma are associated with financial risk‐taking behavior. Posttraumatic stress disorder (PTSD) symptoms for individuals, assessed after the traumatic experiences, are used as psychological responses to the events. Individuals who experience moderate‐level PTSD symptoms are 1.5% more likely to invest in risky assets, whereas individuals with high‐level PTSD symptoms are 2.4% less likely to invest in risky assets. Further analysis suggests that the association between PTSD symptoms and risk‐taking comes through a preferences channel rather than a beliefs channel.