Risk preferences, preventive behaviour, and the probability of a loss: Empirical evidence from the COVID-19 pandemic

Rationale: A theoretical model of optimal choice under risk, in which an individual chooses the level of prevention to avoid a loss, has the ambiguous prediction that a higher risk-taking preference increases the probability of a loss. Objective: To empirically investigate the prediction in the case of COVID-19 with individual-level survey data. Data: Survey data from the Understanding America Study (UAS). The UAS Coronavirus Tracking Survey followed 8628 respondents from March 2020 until July 2021 (29 survey waves) and data was gathered on having contracted COVID-19, vaccination, and preventive behaviour. Separate UAS modules gathered data on individuals' risk preferences; twice before and once during the COVID-19 pandemic. UAS also gathered data on pre-pandemic health and socio-economic status. Combining these data, and dropping missing observations, provided longitudinal data for 4335 respondents (96,370 observations) of whom 530 contracted COVID-19. Results: In support of the theoretical prediction, the empirical findings show that a one-standard deviation higher risk-taking preference is associated with about a one-third higher probability of contracting COVID-19 within two weeks. Furthermore, the findings show that individuals' risk-taking preference is negatively associated with the preventive behaviour of social distancing and not associated with getting vaccinated. There is, however, no support for preventive behaviour being associated with the probability of contracting COVID-19. The exception is for being vaccinated, which is negatively associated with the probability of contracting COVID-19. The findings, therefore, do not support that the positive association of the risk-taking preference with the probability of contracting COVID-19 is mediated through observed preventive behaviour. Conclusions: The findings support the importance of individuals' risk-taking behaviour for contracting COVID-19 and, more generally, the importance of loss prevention as a risk management tool for individuals.