Quantitative Economics: Mar, 2022, Volume 2, Issue 1

Childhood determinants of risk aversion: The long shadow of compulsory education

Dmytro Hryshko, María José Luengo-Prado, Bent E. Sørensen

We study the determinants of individual attitudes toward risk and, in particular,
why some individuals exhibit extremely high risk aversion. Using data from the
Panel Study of Income Dynamics, we find that policy induced increases in high
school graduation rates lead to significantly fewer individuals being highly risk
averse in the next generation. Other significant determinants of risk aversion are
age, sex, and parents’ risk aversion. We verify that risk aversion matters for eco-
nomic behavior in that it predicts individuals’ volatility of income.
Keywords. Intergenerational transmission, schooling reforms, preference for-
mation.
JEL classification. E21, I29.

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