Can Having Internal Locus of Control Insure against Negative Shocks? Psychological Evidence from Panel Data

Melbourne Institute Working Paper No. 12/15

Date: 2015

Author(s):

Hielke Buddelmeyer
Nattavudh Powdthavee

Abstract

We investigate whether the intensity of emotional pain following a negative shock is different across the distribution of a person’s locus of control – the extent to which individuals believe that their actions can influence future outcomes. Using panel data from Australia, we show that individuals with strong internal locus of control are psychologically insured against becoming a victim of property crime and death of a close friend, but not against the majority of other life events. The buffering effects vary across gender. Our findings thus add to the existing literature on the benefits of internal locus of control.