Further examination of the demographic and social factors affecting risk aversion

In this paper we examine how social and demographic factors explain risk aversion. Specifically, we focus on how an individual’s place of residence effects his level of risk aversion. Israel is a natural experiment field for such an investigation since the majority of its population lives either in big or small cities, moshavs, or kibbutzim, where the last two forms of settlement being unique to Israel. The kibbutz follows the prototype of a collectivist culture; the moshav follows the prototype of an individualistic culture. This environment also allows us to reexamine the contradiction between the “cushion hypothesis” and previous findings regarding the risk aversion of Israeli kibbutz residents. In general, we find that the moshav respondents demonstrate the lowest level of risk aversion and the kibbutz (and the small city) respondents demonstrate the highest. However, further examination reveals that the risk aversions are domain specific. The urban residents of both big and small cites are similar to each other than they are to residents of the kibbutz and the moshav, who, in turn, are more similar to each other than they are to the urban residents. For example, kibbutz and moshav respondents are less risk averse in insurance and gambling, but more risk averse in driving and sport, compared to urban residents. Interestingly, on average, the respondents demonstrate the highest level of risk aversion for extreme sports and the lowest level of risk aversion for irresponsible driving. Copyright Swiss Society for Financial Market Research 2016