ConclusionsThis paper adds the element of happiness into the nexus between trust and households’ financial and insurance decisions.The empirical research is based on IV probit models that use implications from the psychology and economic literatures to find optimal instruments for the treatment of the endogeneity of the happiness and trust variables.In accordance with the previous literature, the results provide strong support for the positive independent effect of subjective trust on risky financial investments and insurance purchases. However, the results also indicate that happier individuals are less likely to invest in these assets. This novel finding is in line with theMood Maintenance Hypothesis, which asserts that individuals in a good mood are reluctant to gamble because they do not want to undermine their happy feeling. Thus, these individuals are relatively more risk averse. Notably, the economic significance of the negative effect of happiness on the probability of investing in risky financial products and insurance outshines the respective positive effect of trust. Further, we show that for even moderately levels of