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Risk Attitudes and Well-being in Latin America

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  • Juan Camilo Cárdenas

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  • Jeffrey Carpenter

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Abstract

A common premise in both the theoretical and policy literature 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 problems 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 Aries, Caracas, Lima, Montevideo, San José. In addition to the experiment which reveals interestingcross-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 wellbeing. However, when we analyze the results of three treatments that add elements of reality to the decision problem, 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.

Suggested Citation

  • Juan Camilo Cárdenas & Jeffrey Carpenter, 2010. "Risk Attitudes and Well-being in Latin America," DOCUMENTOS CEDE 007718, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:007718
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2010-34.pdf
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    References listed on IDEAS

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    1. 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, vol. 11(1), pages 1-56, November.
    2. Antoni Bosch-Domènech & Joaquim Silvestre, 2003. "Do the eealthy risk more money? An experimental comparison," Economics Working Papers 692, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.
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    Cited by:

    1. Alpizar, Francisco & Carlsson, Fredrik & Naranjo, Maria A., 2011. "The effect of ambiguous risk, and coordination on farmers' adaptation to climate change — A framed field experiment," Ecological Economics, Elsevier, vol. 70(12), pages 2317-2326.
    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 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, vol. 42(3), pages 233-261, June.
    4. Philip J. Grossman, 2013. "Holding Fast: The Persistence And Dominance Of Gender Stereotypes," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 747-763, January.
    5. Jeffrey Carpenter & Tyler Williams, 2010. "Moral hazard, peer monitoring, and microcredit: field experimental evidence from Paraguay," Working Papers 10-6, Federal Reserve Bank of Boston.

    More about this item

    Keywords

    risk aversion; ambiguity aversion; loss aversion; risk pooling; well-being; 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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