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Peer effects in risk preferences: Evidence from Germany

Author

Listed:
  • Mark J. Browne

    (St. John’s University)

  • Annette Hofmann

    (St. John’s University)

  • Andreas Richter

    (Ludwig-Maximilians-Universität München)

  • Sophie-Madeleine Roth

    (Ludwig-Maximilians-Universität München)

  • Petra Steinorth

    (Universität Hamburg)

Abstract

This study uses data from the German Socio-Economic Panel to analyze peer effects in risk preferences. Empirical evidence on the impact of peer groups on individual willingness to take risks (‘peer effects’) is very limited so far as causality is hard to establish. To establish a causal relationship between individual and community risk preferences, we use an instrumental variables approach where we track the impact of the East–West migration after the German reunification. We find strong support for peer effects in risk preferences. Peer effects seem particularly relevant for women, less educated individuals, the young population, parents, and married individuals. Individuals with higher social interaction tend to have stronger peer effects. Our findings shed light on the origin and stability of risk tolerance and, more generally, on the determinants of economic preferences.

Suggested Citation

  • Mark J. Browne & Annette Hofmann & Andreas Richter & Sophie-Madeleine Roth & Petra Steinorth, 2021. "Peer effects in risk preferences: Evidence from Germany," Annals of Operations Research, Springer, vol. 299(1), pages 1129-1163, April.
    • Handle: RePEc:spr:annopr:v:299:y:2021:i:1:d:10.1007_s10479-019-03476-9
    DOI: 10.1007/s10479-019-03476-9
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    More about this item

    Keywords

    Peer effects; Willingness to take risks; Risk preferences; Instrumental variable; German SOEP; Migration;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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