Divorce as Risky Behavior

Audrey Light, Ohio State University
Taehyun Ahn, Ohio State University

We extend the orthodox divorce model by assuming that women are risk averse, marriage is risky, and divorce is even riskier. As long as divorce is location-independent riskier than marriage, our model yields the familiar result that the risk premium that compensates agents for the greater risk associated with divorce decreases monotonically in their level of relative risk tolerance. In short, we predict that the probability of divorce increases in individual risk tolerance. We assess this prediction by using a sample of women from the NLSY79 to estimate a probit model of divorce. We control for a rich array of determinants of the gains to marriage and divorce, plus a measure of relative risk tolerance derived from responses to “income gamble” questions. We find that risk tolerance is an important determinant of divorce: e.g., a 1.5 standard deviation increase in risk tolerance raises the predicted probability of divorce by 11%.