Risk Attitudes do not explain Cash Holdings
Type
working paper
Date Issued
2024-12-03
Author(s)
Abstract
Despite the long-term trend away from cash and the widespread adoption and acceptance of payment cards, many people still carry considerable amounts of cash. In a pre-registered study, I examine whether risk attitudes or a preference for the timing of resolution of uncertainty can explain consumers' persistent cash holdings. To self-insure against the possibility of being unable to pay by card, risk-averse consumers are expected to hold cash in larger amounts. Moreover, consumers who overweight the small probability of card non-acceptance and those who prefer early resolution of uncertainty are also predicted to carry more cash. I test these predictions using data from the RAND American Life Panel (N=1,021) and on experimental preference data from Swiss consumers (N=1,682). 86% of U.S. and 95% of Swiss individuals carry cash in their wallets, with an average of USD 63 and CHF 94, respectively. Neither risk aversion, probability weighting, nor a preference for early resolution of uncertainty are consistently related to cash holdings. This highlights a gap in our understanding of cash management that current standard and behavioral theories do not fully address, warranting further research.
Language
English
Keywords
holding cash
cash management
risk aversion
probability weighting
preference for uncertainty resolution
pre-analysis plan D14
D81
D90
E41
O33
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Name
JMP_Risk_attitudes_Nicole_Hentschel.pdf
Size
2.36 MB
Format
Adobe PDF
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