The relationship between depression and risk taking
A new Life Course Centre Working Paper examines the way that depressive episodes shape risk preferences and risk-taking behaviours.
The paper, authored by Life Course Centre researchers Professor Deborah Cobb-Clark, Dr Sarah Dahmann and Dr Nathan Kettlewell of the University of Sydney’s School of Economics, uses large-scale representative panel data from German households. Their analysis suggests likely pathways between depression and risky behaviour, but is not causal. Those at risk of experiencing a depressive episode are more willing to take risks with regards to their health (smoking, poor diet, and sedentary lifestyle) than those who are not currently at risk. However, results are mixed for financial risks (purchasing risky assets and insurance) and social risk-taking (lending money or belongings to friends). The authors find that differences in risk-taking behaviour are largely explained by depression-related disparities in behavioural traits such as control, optimism and trust.
Although its analysis is not causal, the paper does identify several behavioural tendencies that may be helpful in screening for depression. These findings have important implications for public health efforts to address mental health challenges. The results also open up interesting directions for the design of interventions targeting less desirable risk-taking behaviour, such as purchasing high-risk assets or insuring less. These financial risks might be mitigated through interventions targeting financial literacy for those experiencing, or at risk of experiencing, depression.
You can read the full Working Paper ‘Depression, Risk Preferences and Risk-taking Behaviour’, here.