DP7999 Childhood Determinants of Risk Aversion: The Long Shadow of Compulsory Education

Author(s): Dmytro Hryshko, Maria Jose Luengo-Prado, Bent E Sørensen
Publication Date: September 2010
Keyword(s): high school movement, intergenerational transmission
JEL(s): e21, i29
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7999

We study the determinants of individual attitudes towards risk and, in particular, why some individuals exhibit extremely high risk aversion. Using data from the Panel Study of Income Dynamics we find that a policy induced increase in high school graduation rates leads 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 economic behavior in that it predicts individuals' volatility of income.