Life-Cycle Risk-Taking with Personal Disaster Risk

This paper examines households' self-insurance in financial markets when a rare personal disaster, such as disability or long-term unemployment, may occur during working years. Personal disaster risk alters lifetime ex-ante investment choices, even if most workers will not experience disaster. Uncertainty about the size of human capital losses, which characterizes disasters, results lower risk-taking at beginning life, and is crucial order to match observed age profiles US investors from 1992 2016.