Illustration of disability in Vietnam
Illustration of disability in Vietnam
When a family member becomes disabled, individuals become more risk averse—a finding with significant implications for policies that address poverty and vulnerability in disability-affected households.
Editor's note: The views expressed in this piece are those of the authors alone and do not present the views of the Bernhard Nocht Institute for Tropical Medicine, University of Gottingen, or World Bank.
More than one billion people worldwide experience some type of disability (WHO 2011). Research has consistently found that people with disabilities experience poorer health outcomes, lower educational achievement, and fewer economic opportunities compared to people without disabilities (Filmer 2008, Mont and Nguyen 2011). Not only are individuals with the disability affected, but so are other members of their households who face greater financial distress (Deshpande et al. 2021), adjust labour supply (Powers 2003), shy away from risky investments (Bogan and Fernandez 2017), and are more likely to be poor (Mitra et al. 2013).
In our research (Priebe et al. 2024) we examine the link between disability incidences and risk preferences of other household members. We find that when someone in a household becomes disabled, other family members become more risk averse. This finding is consistent across multiple data sources, risk measures, and econometric specifications.
Why is studying disability-related risk preferences important?
Risk preferences—how willing individuals are to take chances with uncertain outcomes—matter for several reasons.
First, they influence real-world decisions with economic consequences, including labour market choices, health behaviours, compliance with laws, and investment decisions (Bonin et al. 2007, Dohmen et al. 2011). Changes in risk preferences following a disability incidence in a household may help explain differences in economic outcomes between households with and without disabilities.
Second, an individual's risk preferences matter for optimal government policy design. The welfare impact of social insurance and other governmental interventions depend on the risk preferences of the target population, as these preferences determine the welfare value of having a smoother consumption path through insurance (Chetty 2006).
Establishing a causal link between disability incidence and risk preference
Our study combines two complementary empirical approaches to study how disability events affect risk preferences in Vietnam, a country with a high incidence of disability.
Panel data analysis: We use 6 rounds of household panel data (2008-2017) from the Thailand Vietnam Socio Economic Panel, comprising around 2,000 households per round. This allows us to analyse how changes in household disability status affect risk preferences. Willingness to take risks is measured from 0 (completely unwilling to take risks) to 10 (very willing to take risks).
Lab-in-the-field experiment: The second empirical approach rests on a lab-in-the-field experiment with 804 individuals in rural Vietnam. This experiment was designed to explore the role of cognitive-emotional mechanisms in driving the disability incidence versus risk preference relationship. Households were randomly grouped to receive different ‘primes’—small cues to stimulate individuals into thinking about the health and well-being of other household members and the possible implications for themselves—that allow us to investigate how disability affects risk preferences.
Households that experience a disability event are more risk averse
Across both empirical approaches, we find consistent evidence that individuals who experience a disability event—for instance caused by a sudden illness or accident, or the development of progressive conditions like degenerative diseases or chronic health issues—in their household become significantly more risk averse compared to those without such an experience.
In the panel data, experiencing a disability shock in the household reduces willingness to take risks by approximately 0.85 points on the 11-point scale. Figure 1 shows how risk preferences are affected by a disability event (in period 0). There is no discernible difference in risk preferences before the disability incidence, but thereafter the risk measure declines for disability-affected households. The effect diminishes in period 4, as there is only a small sample of households that had a disability event 4 periods before.
Figure 1. The effects of disability incidence on risk preferences, pre- and post-treatment
The effects of disability incidence on risk preferences, pre- and post-treatment
The effects of disability incidence on risk preferences, pre- and post-treatment
Notes: The graph presents estimation results following the methodology developed by Borusyak et al. (2024). The outcome variable is a measure of the willingness to take risks in life on a scale from 0 (completely unwilling to take risks) to 10 (very willing to take risks). The treatment variable is household level disability, excluding the disability status of the respondent and based on the original household composition. Disability is measured as ’severe’ or ’very severe’. Estimations control for individual and district-year fixed effects, as well as for respondent’s disability status, age, marital status, household size and educational attainment. Shaded areas show 95% confidence intervals, with standard errors clustered on the village level.
Our experimental data confirms these findings using incentivised risk measures. Figure 2 shows the experimental results descriptively, plotting the distribution function of four measures of risk (for all measures, risk-taking increases on the X-axis) and two samples, where DS = 1 signifies the disability-primed sample. By and large, we observe that individuals in the disability sample exhibit a lower willingness to take risks (a shift of curves to the left). These mirror the patterns in causal empirical analysis.
Figure 2. Histograms of different risk measures from the lab-in-the-field experiments
Histograms of different risk measures from the lab-in-the-field experiments
Note: Data comes from the lab-in-the-field experiment and depicts the distribution of the four risk measures (EG = Eckel and Grossman (2002); BR = Bruner (2009); RQ = simple 11-point risk scale, pre- and post-treatment) by sample (DS = 0 versus DS = 1).
Disability-related risk preferences can be explained by wealth effects and cognitive mechanisms
Our analysis reveals that two main channels explain these changes in risk preferences:
Wealth effects: We find that a disability event leads to a decrease in household wealth (due to health expenditure, for instance), which is positively correlated with willingness to take risks. However, the wealth channel alone cannot fully explain the magnitude of changes we observe.
Cognitive mechanisms: Our lab-in-the-field experiments show that fear and changes in beliefs about future risks play an important role. Psychological ‘priming’ that induced fear about family members' health have stronger effects on those who lived with family members with a disability. Additionally, the panel data shows that individuals who experienced a disability event in their household became more pessimistic about future negative events (such as an illness or death in the household).
Implications for disability and social protection policy
Understanding these changes in risk preferences can help design more effective social protection policies for households affected by disability, potentially breaking cycles of poverty and vulnerability.
Our results suggest that disability not only affects household welfare directly through medical costs and reduced earnings, but also indirectly by altering risk preferences of other household members. This may lead to more conservative economic behaviours and reduced entrepreneurial activity, further entrenching economic disadvantages.
Policies that help households manage the risks associated with disability—such as disability insurance, improved access to healthcare, and targeted support services—may have broader benefits beyond just addressing immediate needs. By providing protection against catastrophic risks, such policies can prevent shifts toward risk aversion that could otherwise hamper economic mobility.
References
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WHO (2011), "World report on disability 2011."