Can Risk Aversion Explain Schooling Attainments? Evidence from Italy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Can Risk Aversion Explain Schooling Attainments? Evidence from ItalyChristian Belzil Marco Leonardi We analyze how grade transition from one level to the next varies with preference heterogeneity (risk aversion), parental human capital, socioeconomic variables and persistent unobserved (to the econometrician) heterogeneity. We present evidence that schooling continuation probabilities decrease with risk aversion at low grade levels, but increase with risk aversion at the time when the decision to enter higher education is made. However, differences in attitudes toward risk account for a modest portion of the probability of entering higher education. Differences in parental human capital and ability(ies) are much more important. D I S C U S S I O N P A P E R S E R I E SJEL Classification: J24

Risk Aversion and Schooling Decisions

“…Using unique Italian panel data (the Bank of Italy Survey of Income and Wealth) in which individual differences in attitudes toward risk are measurable, we develop a nonrational expectation econometric model of sequential schooling decisions. 3 We infer the subjective effect of continuing to a higher grade level on marginal risk exposure, from the estimated effect of risk aversion on the decision to attend higher education. We take into account the potential endogeneity of risk aversion.…”

“…This would be difficult to achieve and indeed, as of now, such a comprehensive study does not exist. 3 Because we do not model how subjective distributions are inferred, the model is not necessarily inconsistent with a standard rational expectation framework. However, we use the term non-rational expectations in order to differentiate our approach from the structural dynamic expected utility models, in which Bellman equations are solved explicitly, for a given set of beliefs.…”

The Economics and Psychology of Personality Traits

“…However, there is no general consensus on the direction of such differences: some studies find a negative relationship between education and risk aversion (Weiss 1972;Belzil and Leonardi 2006;Ferrer-i-Carbonell 2005;Binswanger 1980Binswanger , 1981Guiso and Paiella 2001;and Andersen et al 2005), while Barsky et al (1997) find an inverse U-shaped relationship, with risk tolerance peaking at 12 years of education. There are some consistent patterns of a negative relationship between unemployment duration and risk aversion, (see Feinberg 1977, andKohn andSchooler 1978).…”

Stay in school or start working? — The human capital investment decision under uncertainty and irreversibility

“…2 In line with these findings is the idea of introducing risk and other non-pecuniary elements in the empirical model. 3 Further, Heckman, Lochner, and Todd (2006) give reasons why option values should be included in the decision, and show how option values invalidate the internal rate of return as an investment choice criterion.…”

“…Proposition 1 For a constant accumulation of costs per year of successful schooling (1), a sequence of increasing earning levels through schooling described by (2), and an earning dynamics after market entry following (3) we can determine the threshold Y * (T ) that would trigger the start of the earning/working process.…”