Circumstantial Risk: Impact of future tax evasion and labor supply opportunities on risk exposure
Refereed Journal // 2015This paper examines whether investment in a risky asset depends on future circumstances. We conduct a laboratory experiment where subjects have the opportunity to invest earned income in a risky asset and, depending on randomly assigned treatment states, have the opportunity to respond to the outcome of the investment through extra labor e ort and/or tax evasion. We nd evidence that ex-post access to labor opportunities decreases ex-ante risk-taking, while access to tax evasion has no e ect. Having both opportunities leads to lower risk-taking, but this e ect is not statistically signi cant. We explore the channels behind these results with two additional treatments and nd that our results are driven by background risk rather than exibility.