Depression babies

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Does the personal experience of economic and financial fluctuations shape individuals' risk choices? A recent paper, using U.S. consumer survey data suggests it does.

Take these examples: the average stock market participation rate for the generation that experienced the Great Depression as teenagers or adults is less than half that of all other age groups. The 1931-40 age group, on the other hand, that experienced the post-war boom years as young adults has a stock market participation rate almost twice the average.

Both recent and past experience counts.  Young households in the early 1980s - having experienced the dismal stock returns of the 1970s - had lower rates of stock market participation than older households for whom the negative experience of the 1970s was moderated by the high-return experience of the 1950s and 1960s.

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