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Risk Attitudes and Well-Being in Latin America

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Author Info

  • Cardenas, Juan Camilo

    ()
    (Universidad de los Andes)

  • Carpenter, Jeffrey P.

    ()
    (Middlebury College)

Abstract

A common premise in both the theoretical and policy literatures on development is that people remain poor because they are too impatient to save and too risk averse to take the sort of chances needed to accumulate wealth. The empirical literature, however, suggests that this assumption is far from proven. We report on field experiments designed to address many of the issues confounding previous analyses of the links between risk preferences and well-being. Our sample includes more than 3,000 participants who were drawn representatively from six Latin American cities: Bogotá, Buenos Aires, Caracas, Lima, Montevideo, San José. In addition to the experiment which reveals interesting cross-country differences, participants completed an extensive survey that provides data on a variety of well-being indicators and a number of important controls. Focusing on risk preferences, we find little evidence of robust links between risk aversion and well-being. However, when we analyze the results of three treatments designed to better reflect common choices made under uncertainty, we see that these, more subtle, instruments correlate better with well-being, even after controlling for a variety of other important factors like the accumulation of human capital and access to credit.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5279.

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Length: 38 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5279

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Keywords: risk aversion; ambiguity aversion; loss aversion; risk pooling; well-being; Latin America;

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References

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  1. Antoni Bosch-Domènech & Joaquim Silvestre, 2003. "Do the Wealthy Risk More Money? An Experimental Comparison," Discussion Papers 03-15, University of Copenhagen. Department of Economics.
  2. Engle Warnick James C. & Escobal Javier & Laszlo Sonia C., 2011. "Ambiguity Aversion and Portfolio Choice in Small-Scale Peruvian Farming," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 11(1), pages 1-56, November.
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Cited by:
  1. Philip J. Grossman, 2011. "Holding Fast: The Persistence and Dominance of Gender Stereotypes," Development Research Unit Working Paper Series, Monash University, Department of Economics 28-11, Monash University, Department of Economics.
  2. Luis Roberto Martínez & Christian Jaramillo & Nicolas De Roux & Juan-Camilo Cárdenas, 2010. "It´s Not My Money: An Experiment on Risk Aversion and the House-money Effect," DOCUMENTOS CEDE, UNIVERSIDAD DE LOS ANDES-CEDE 006712, UNIVERSIDAD DE LOS ANDES-CEDE.
  3. Jeffrey Carpenter & Justin Garcia & J. Lum, 2011. "Dopamine receptor genes predict risk preferences, time preferences, and related economic choices," Journal of Risk and Uncertainty, Springer, Springer, vol. 42(3), pages 233-261, June.
  4. Jeffrey Carpenter & Tyler Williams, 2010. "Moral hazard, peer monitoring, and microcredit: field experimental evidence from Paraguay," Working Papers, Federal Reserve Bank of Boston 10-6, Federal Reserve Bank of Boston.

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