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Education, Risk Preference and Wages

Author

Listed:
  • Sarah Brown

    (Department of Economics, The University of Sheffield)

  • Karl Taylor

    (Department of Economics, The University of Sheffield)

Abstract

We explore the effect of risk preference on the educational attainment and wages of a sample of individuals drawn from the U.S. Panel Study of Income Dynamics (PSID). Using a sequence of questions from the 1996 PSID, we are able to construct measures of risk aversion and risk tolerance allowing us to explore the implications of interpersonal differences in risk preference for educational attainment. Our empirical findings suggest that risk preference has a significant influence on human capital accumulation, with the degree of risk aversion (tolerance) being inversely (positively) associated with educational attainment. In addition, our findings suggest that risk preference is a valid instrument for education in a standard Mincerian earnings function.

Suggested Citation

  • Sarah Brown & Karl Taylor, 2006. "Education, Risk Preference and Wages," Working Papers 2006002, The University of Sheffield, Department of Economics, revised Feb 2006.
    • Handle: RePEc:shf:wpaper:2006002
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    File URL: http://www.shef.ac.uk/content/1/c6/05/25/19/SERP2006002.pdf
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    File URL: http://www.shef.ac.uk/content/1/c6/05/25/19/SERP2006002.pdf
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    References listed on IDEAS

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    6. Brunello, Giorgio, 2002. "Absolute risk aversion and the returns to education," Economics of Education Review, Elsevier, vol. 21(6), pages 635-640, December.
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    9. Kathryn Wilson & Barbara Wolfe & Robert Haveman, 2005. "The Role of Expectations in Adolescent Schooling Choices: Do Youths Respond to Economic Incentives?," Economic Inquiry, Western Economic Association International, vol. 43(3), pages 467-492, July.
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    Cited by:

    1. Anderson, Lisa R. & Mellor, Jennifer M., 2008. "Predicting health behaviors with an experimental measure of risk preference," Journal of Health Economics, Elsevier, vol. 27(5), pages 1260-1274, September.
    2. Lisa Anderson & Jennifer Mellor, 2009. "Are risk preferences stable? Comparing an experimental measure with a validated survey-based measure," Journal of Risk and Uncertainty, Springer, vol. 39(2), pages 137-160, October.
    3. Scott Drewianka, 2010. "Cross‐Sectional Variation In Individuals' Earnings Instability," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(2), pages 291-326, June.

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    More about this item

    Keywords

    Human Capital; Risk Aversion; Risk Preference; Wages.;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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