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Risk attitudes and economic well-being in Latin America

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  • Cardenas, Juan Camilo
  • Carpenter, Jeffrey

Abstract

A common conjecture in both the theoretical and policy literatures on development is that people remain poor because they are too impatient and risk averse to accumulate the resources needed to improve their well-being. The empirical literature, however, suggests that this conjecture is far from proven. We sample more than 3000 participants drawn representatively from six Latin American cities and find little correlation between baseline risk aversion and well-being, measured as an index of eight outcomes. We do, however, find that measures of ambiguity aversion, loss aversion and the willingness to take advantage of a risk pooling scheme all correlate with well-being. Participants who are ambiguity averse, loss averse, and who react conservatively in the risk pooling condition all have significantly lower scores on our well-being index. These results are robust to the inclusion of a variety of important controls like human capital accumulation and access to credit.

Suggested Citation

  • Cardenas, Juan Camilo & Carpenter, Jeffrey, 2013. "Risk attitudes and economic well-being in Latin America," Journal of Development Economics, Elsevier, vol. 103(C), pages 52-61.
  • Handle: RePEc:eee:deveco:v:103:y:2013:i:c:p:52-61
    DOI: 10.1016/j.jdeveco.2013.01.008
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    4. Zhixin Dai & Fabio Galeotti & Marie Claire Villeval, 2016. "Cheating in the Lab Predicts Fraud in the Field An Experiment in Public Transportations," Working Papers halshs-01265696, HAL.
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    More about this item

    Keywords

    Risk aversion; Ambiguity aversion; Loss aversion; Risk pooling; Economic status; Latin America;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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