Abstract
Using a comprehensive administrative panel of Swedish households, we show how the introduction of capital protected investments and their broad adoption lead to a significant increase in exposure to stock markets for a large share of the population. This effect is significantly more pronounced for households exhibiting a high reluctance to take financial risk before innovation. To rationalize our empirical findings, we develop a lifecycle model and confront a set of utility functions to the data. We find that first order risk aversion with narrow framing (Barberis and Huang 2009) can explain both the increase in the risky share and the heterogeneity we empirically observe. Our results illustrate how security design can mitigate household reluctance to take financial risk.