Negative interest rates and individuals’ risk-taking behaviour

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Several central banks have implemented negative interest rate policies. Partly caused by these policies, current interest rates on savings are historically low. At several banks, wealthy depositors even have to pay their banks for the possibility to store their savings. This raises the question how individual savers would react on negative interest rates on their savings. This experimental study analyses how negative interest rates impact risk-taking behaviour of individual savers. Negative interest rates on savings cause people to invest more in risky alternatives to saving, while a comparable declining interest rate in positive territory does not lead to an increase in individuals’ risk-taking behaviour. The experimental results might be explained by loss probability aversion and the diminishing sensitivity principle of prospect theory. In addition, the impact of negative interest rates on individuals’ risk-taking behaviour depends on personal characteristics. The level of risk-taking of women increases when the interest rate on savings becomes negative, while negative interest rate do not change the risk-taking behaviour of men. Furthermore, people who score low on financial literacy increase their asset investments more in the case of a negative interest rate than people who score high on financial literacy.
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