Essays on Household Risk-Taking

Households are regularly confronted with decisions involving risk, both in their professional lives and in managing their financial assets. Understanding how individuals navigate these risks in the labor as well as the financial markets provides valuable insights into broader economic patterns. The thesis aims to contribute to the literature by identifying previously overlooked factors. Article I investigates whether unemployment risk motivates employees to become entrepreneurs. By exploiting a quasi-experiment setting in Sweden, this article is among the first to empirically show that unemployment risk could promote entrepreneurship. In addition, the nudged entrepreneurs do not underperform, in terms of both business quality and personal income, when compared with their counterparts. The findings are expected to help policymakers better design employment protection legislation. Article II examines how one’s cultural origins relate to the decision to enter entrepreneurship. Using a sample of second-generation immigrants in Sweden, this article documents that children of immigrants from more risk-loving cultures are more likely to start a business, although of poorer quality. This study also finds that entrepreneurs with parents from cultures with higher risk appetite earn a lower personal income. Furthermore, the analysis demonstrates that culturally transmitted risk appetite has significant effects beyond individual and parental socio-economic characteristics. Article III evaluates the portfolio diversification gap between immigrant and native-born investors using a comprehensive administrative dataset from Sweden. I document that immigrant investors incur a 37% higher return loss compared to natives, driven predominantly by underdiversification instead of high risky share. This gap persists even among second-generation immigrants. Moreover, immigrants with native-born partners or from countries with higher financial literacy levels experience lower return losses. These findings highlight the need for policies that facilitate social integration and promote financial education to improve immigrants' financial outcomes.