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Does education affect risk aversion? Evidence from the British education reform

SeEun Jung ()

Applied Economics, 2015, vol. 47, issue 28, 2924-2938

Abstract: Individual risk attitudes are frequently used to predict decisions regarding education. However, using risk attitudes as a control variable for decisions about education has been criticized because of the potential for 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 duration of compulsory schooling from age 15 to age 16. Using regression discontinuity design, we find that this additional year of schooling increases the level of risk aversion, which is contrary to previous findings in the literature, and we also find that this result is particularly strong for individuals with less education. This positive causal effect of education on risk aversion might alleviate concerns regarding the endogeneity/reverse causality issue when using risk aversion as an explanatory variable for decisions about education; the sign would remain credible because the coefficients are underestimated.

Date: 2015
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DOI: 10.1080/00036846.2015.1011313

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