Propensity to trust and risk aversion: Differential roles in the trust process

Alarcon, Gene M.; Jessup, Sarah A.

doi:10.1016/j.jrp.2023.104349

Cited by 4 publications

(1 citation statement)

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“…Time preferences, therefore, play a pivotal role in lifelong decision-making by individuals, including university students. Intertemporal choices are made in a context where there are inherent risks coupled with the knowledge an individual is holding (Alarcon and Jessup 2023). Making time preference choices is a function of certain and uncertain information privy to an individual (Gin´e et al 2018).…”

Section: Introductionmentioning

confidence: 99%

The mediation and moderation effect of risk preferences on time preference and financial literacy

Mudzingiri,

Sunge,

Katuka

et al. 2024

Preprint

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This paper investigates the mediation and moderation effect of risk preference on time preferences and financial literacy. Existing studies show that people with higher levels of financial literacy are more likely to achieve better life outcomes. Better life outcomes depend on an individual’s knowledge and intertemporal choices executed in a context where inherent risk is prevalent. Regardless, existing studies directly evaluate the effects of financial literacy on intertemporal decisions. The current study brings in a different dimension by accounting for risk preferences' mediation and moderation role on financial literacy and time preferences. We collected data from 191 university students in South Africa using Multiple Price List (MPL) time preference and risk preference elicitation, a questionnaire, and a financial literacy test. A maximum likelihood estimation (MLE) of a pooled panel structural equation model (SEM) analysis was employed. The headline finding is that risk preferences fully mediate the impact of financial literacy on time preferences. The random effect panel regression on the moderation effect of time-risk preferences on financial literacy and financial literacy-risk preferences on time preferences confirms reverse causality between time preferences and financial literacy. The moderation effect of risk preferences on time preferences and financial literacy varies from one category of subjects to another. Risk aversion is associated with high levels of financial literacy. JEL: C91; G4

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Section: Introductionmentioning

confidence: 99%