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On the Origins of Risk-Taking

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  • Black, Sandra E.

    (Columbia University)

  • Devereux, Paul J.

    (University College Dublin)

  • Lundborg, Petter

    (Lund University)

  • Majlesi, Kaveh

    (Monash University)

Abstract

Risk-taking behavior is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use data on stock market participation of Swedish adoptees and relate this to the investment behavior of both their biological and adoptive parents. We find that stock market participation of parents increases that of children by about 34% and that both pre-birth and post-birth factors are important. However, once we condition on having positive financial wealth, we find that nurture has a much stronger influence on risk-taking by children, and the evidence of a relationship between stock-holding of biological parents and their adoptive children becomes very weak. We find similar results when we study the share of financial wealth that is invested in stocks. This suggests that a substantial proportion of risk-attitudes and behavior is environmentally determined.

Suggested Citation

  • Black, Sandra E. & Devereux, Paul J. & Lundborg, Petter & Majlesi, Kaveh, 2015. "On the Origins of Risk-Taking," IZA Discussion Papers 9178, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9178
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    Cited by:

    1. Claus Thustrup Kreiner & Søren Leth-Petersen & Louise Charlotte Willerslev-Olsen, 2020. "Financial Trouble Across Generations: Evidence from the Universe of Personal Loans in Denmark," The Economic Journal, Royal Economic Society, vol. 130(625), pages 233-262.
    2. Sandra E Black & Paul J Devereux & Petter Lundborg & Kaveh Majlesi, 2020. "Poor Little Rich Kids? The Role of Nature versus Nurture in Wealth and Other Economic Outcomes and Behaviours," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(4), pages 1683-1725.
    3. Iris Kesternich & James P. Smith & Joachim K. Winter & Maximiliane Hörl, 2020. "Early‐Life Circumstances Predict Measures of Trust among Adults: Evidence from Hunger Episodes in Post‐War Germany," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 280-305, January.
    4. Marco Di Maggio & Amir Kermani & Kaveh Majlesi, 2020. "Stock Market Returns and Consumption," Journal of Finance, American Finance Association, vol. 75(6), pages 3175-3219, December.
    5. Contreras Suarez, Diana & Cameron, Lisa A., 2016. "Conditional Cash Transfers: Do They Change Time Preferences and Educational Aspirations?," IZA Discussion Papers 10309, Institute of Labor Economics (IZA).
    6. Garbinti, Bertrand & Georges-Kot, Simon, 2019. "On the retirement effect of inheritance: heterogeneity and the role of risk aversion," Working Paper Series 2222, European Central Bank.
    7. Andrzej Cwynar, 2021. "Do Women Behave Financially Worse than Men? Evidence from Married and Cohabiting Couples," Central European Business Review, Prague University of Economics and Business, vol. 2021(5), pages 81-98.
    8. Nataliya Barasinska & Dorothea Schäfer, 2018. "Gender role asymmetry and stock market participation – evidence from four European household surveys," The European Journal of Finance, Taylor & Francis Journals, vol. 24(12), pages 1026-1046, August.
    9. Black, Sandra E. & Devereux, Paul J. & Lundborg, Petter & Majlesi, Kaveh, 2015. "Poor Little Rich Kids? The Determinants of the Intergenerational Transmission of Wealth," IZA Discussion Papers 9227, Institute of Labor Economics (IZA).
    10. Brown, Martin & Henchoz, Caroline & Spycher, Thomas, 2017. "Culture and Financial Literacy," Working Papers on Finance 1703, University of St. Gallen, School of Finance.

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    More about this item

    Keywords

    nature versus nurture; intergenerational mobility; portfolio allocation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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