An Empirical Analysis of Risk Aversion and Income Growth

Kathryn Shaw

Journal of Labor Economics, 1996, vol. 14, issue 4, 626-53

Abstract: Risk aversion enters many theoretical models of human capital investment, but attitudes toward risk have not been incorporated in empirical models of human capital investment. This article develops a model of the joint investment in financial wealth and human wealth to show that human capital investment is an inverse function of the degree of relative risk aversion. Using data from the Survey of Consumer Finances, the author finds that wage growth is positively correlated with preferences for risk taking. More educated individuals are also more likely to be risktakers, thus risk taking explains a portion of the returns to education. Copyright 1996 by University of Chicago Press.

Date: 1996
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