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Does Education Affect Risk Aversion?: Evidence from the British Education Reform"

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  • Seeun Jung

    (Université de Cergy-Pontoise, THEMA)

Abstract

Individual risk attitudes are frequently used to predict decisions regarding education. However, using risk attitudes as a control variable for education decisions has been criticized because of potential issues related to reverse causality. Causality between risk aversion and education is unclear, and disentangling the different directions it may run is difficult. In this study, we make the first attempt to investigate the causal effects of education on risk aversion by examining the British education reform of 1972, which increased the termination age of compulsory schooling from age 15 to 16. We find that this additional year of schooling increases the level of risk aversion using IV2SLS and Regression Discontinuity Design which is contrary to previous findings in the literature and we also find that this result is particularly strong for less-educated individuals. This positive causal effect of education on risk aversion could relieve our concerns regarding the endogeneity/reverse causality issue when using risk aversion as an explanatory variable for education decisions; the sign would still be credible because the coefficients are underestimated.

Suggested Citation

  • Seeun Jung, 2014. "Does Education Affect Risk Aversion?: Evidence from the British Education Reform"," THEMA Working Papers 2014-24, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2014-24
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    More about this item

    Keywords

    Risk Aversion; Education Reform; Instrumental Variable: RDD;
    All these keywords.

    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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