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Conference Paper Joint Empirical Social Science Seminar

Chidlhood Determinants of Risk Aversion: the long shadow of compulsory education

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Publication date

20 Sep 2006

Abstract

In the Panel Study of Income Dynamics individuals' risk aversion is strongly influenced by the educational accomplishments of their parents. This observation motivates an important policy question; namely, whether attitudes such as risk aversion are partly formed by policy. We ask if state-level compulsory schooling laws that boosted parents' education made children less risk averse through adulthood. The answer is yes. Other significant determinants of risk aversion are age, gender, religion, and risk aversion of parents. We verify that risk aversion matters for economic behavior: it predicts individuals' volatility of income, the share of stocks in household portfolios, and how likely households are to own businesses.

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