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Peer effects in risk preferences: Evidence from Germany

Mark J. Browne (), Annette Hofmann (), Andreas Richter (), Sophie-Madeleine Roth () and Petra Steinorth ()
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Mark J. Browne: St. John’s University
Annette Hofmann: St. John’s University
Andreas Richter: Ludwig-Maximilians-Universität München
Sophie-Madeleine Roth: Ludwig-Maximilians-Universität München
Petra Steinorth: Universität Hamburg

Annals of Operations Research, 2021, vol. 299, issue 1, No 45, 1129-1163

Abstract: Abstract This study uses data from the German Socio-Economic Panel to analyze peer effects in risk preferences. Empirical evidence on the impact of peer groups on individual willingness to take risks (‘peer effects’) is very limited so far as causality is hard to establish. To establish a causal relationship between individual and community risk preferences, we use an instrumental variables approach where we track the impact of the East–West migration after the German reunification. We find strong support for peer effects in risk preferences. Peer effects seem particularly relevant for women, less educated individuals, the young population, parents, and married individuals. Individuals with higher social interaction tend to have stronger peer effects. Our findings shed light on the origin and stability of risk tolerance and, more generally, on the determinants of economic preferences.

Keywords: Peer effects; Willingness to take risks; Risk preferences; Instrumental variable; German SOEP; Migration (search for similar items in EconPapers)
JEL-codes: C12 D12 D81 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10479-019-03476-9

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