DESPERATION OR DESIRE? THE ROLE OF RISK AVERSION IN MARRIAGE

Because of the uncertainty inherent in searching for a spouse and the uncertainty of the future quality and state of the marriage itself, risk attitudes likely directly impact the timing of marriage. The effect of an individual’s risk aversion, measured via a series of hypothetical gambles over income on time to marriage, is examined using survival analysis. I find risk aversion significantly affects time to marriage, with more risk averse respondents marrying sooner than their more risk‐loving counterparts. Within‐family analyses using sibling data reveal a similar pattern. In addition, the effect of risk aversion on time to marriage is larger in magnitude and more statistically significant for men. One possible explanation for the different results between the sexes is that women value risk aversion as a desirable trait in potential mates. (JEL J10, J11, J12, J16)     

Gender differences in social risk taking

Women in Western societies are typically more risk averse than men in individual risk taking decisions. In real life, however, risk taking decisions are usually made in a social context. So far, empirical evidence whether gender differences are also present in the social risk taking domain is missing. We use a controlled experiment to analyze gender differences in social risk taking. We find that inequality aversion is the main driver for risk aversion in social risk taking. Disaggregating the data for males and females shows that this effect is mainly driven by strong inequality aversion of women. Moreover, by running the experiment with non-standard subjects from an egalitarian small-scale society, our results suggest that gender differences in social risk taking are culture-specific.     

Can gender differences in distributional preferences explain gender gaps in competition?

We design a lab experiment to specifically examine whether a preference for favorable inequality and behindness aversion, as well as egalitarian preferences, affect competitive choices differently among males and females. Using data on approximately 2,000 subjects, we find that selection into competitive environments is negatively related to egalitarian preferences, with smaller negative impacts of being egalitarian on females’ choice to compete. Further, behindness aversion and preference for favorable inequality affect willingness to compete in opposite ways. The willingness to compete is negatively affected by behindness aversion, while a preference for favorable inequality positively influences willingness to compete. Interestingly, when we disaggregate behavior along gender lines, we find that compared to behindness averse males, behindness averse females are more likely to enter the competitive environment. In contrast, there is no significant gender difference in the impact of preference for favorable inequality on competition. Our results suggest that the observed gender difference in competitiveness can stem from male-female differences in distributional preferences and selected personality traits developed during one’s lifetime.     

SALARIES OR PIECE RATES: ON THE ENDOGENOUS MATCHING OF HARVEST WORKERS AND CROPS

The objective of this paper is to determine whether the choice of payment schemes (hourly vs. piece rates) is systematically related to the workers' risk aversion and ability. We derive the equilibrium relationship between agents' risk aversion and ability and the power of incentives (payment scheme) in a market where many heterogeneous principals and agents are endogenously matched. The equilibrium matching between principals and agents depends on the traits and is critical in determining the contract choice. Using confidential data from the National Agricultural Workers Survey (NAWS), we find evidence of matching between agricultural workers and the riskiness of their jobs (crops they harvest) based on workers' risk aversion and no matching based on ability. When controlling for matching, we find strong evidence that high risk‐averse workers choose hourly rates and low risk‐averse workers choose piece rates. We also found that high ability types choose piece rates and low ability types choose hourly rates but the evidence is weaker. (JEL J33, D82, Q12)     

Intergenerational transfer of time and risk preferences

There is a growing interest in individual time and risk preferences. Little is known about how these preferences are formed. It is hypothesised that parents may transmit their preferences to their offspring. This paper examines the correlation in offspring and parental time and risk preferences using data from an annual household survey in Australia (the HILDA survey). Both time and risk preferences are examined and we explored whether the correlation in time and risk preferences varies across the distribution of preferences and across the across the four parent–child dyads (mother/daughter, mother/son, father/daughter, father/son). The results show that there is a significant relationship between parents and their young adult offspring risk and time preference measures. The correlation varies across the distribution of time preferences. The correlation was largest for longer planning horizons. Risk averse parents are more likely to have risk averse children. Except for the father/daughter dyad risk seeking parents are more likely to have risk seeking offspring. Some gender differences were found. The association in parental and offspring time preference was larger for mothers than fathers. Daughters are more likely to be influenced by their mother’s risk preferences, however, sons are equally influenced by both parents. The results of this study suggest that the transmission in preferences is more nuanced than previously thought and parental gender may be important.     

A reverse sunk cost effect in risky decision making: Sometimes we have too much invested to gamble

The sunk cost effect refers to the empirical finding that people tend to let their decisions be influenced by costs made at an earlier time in such a way that they are more risk seeking than they would be had they not made these costs. This finding seems to be in conflict with economic theory which implies that only incremental costs and benefits should affect decisions. The effect is often explained in terms of prospect theory of (Kahneman, D., Tversky, A., 1979. Prospect theory: An analysis of decision under risk. Econometrica 47, 263–291), suggesting that sunk costs may induce a ‘loss frame,’ consequently causing risk seeking behavior. We argue that sunk costs may also result in risk aversion. In the present study we investigated the effect of time and effort investments (Behavioral Sunk Costs) on risky decision making in gain and loss situations. The results show that, in agreement with prospect theory, participants were more risk averse in gain situations than in loss situations. Moreover, incurring Behavioral Sunk Costs appeared to increase risk aversive choices, i.e., a reverse sunk cost effect. Furthermore, the results suggest that, in loss situations, Behavioral Sunk Costs mainly lead to risk aversive behavior if opting for the ‘safe’ alternative is not accompanied by an increased possibility to regret the decision.     

Gambling versus investment: Lay theory and loss aversion

Gambling and investment are two domains that involve financial decisions. The present research investigates people’s lay theories about gambling and investment, and how these lay theories affect loss aversion in these domains. Lay people’s understanding of gambling and investment is often largely based on information that is immediately available to them. Moreover, information about losing money by gambling and earning money through investments are more predominant than information about earning money by gambling and losing money through investments. Hence, we hypothesized and found that people tend to hold lay theories that gambling is more likely to cause losses and less likely to bring gains compared to investment (Study 1); and we observed a stronger loss aversion when the same monetary decision was framed as gambling rather than as an investment (Studies 2 to 6). This domain-framing effect held in both hypothetical and incentivized settings.     

GENDER-BASED RISK AVERSION AND RETIREMENT ASSET ALLOCATION

This research examines whether women have higher risk aversion than men as demonstrated by their retirement asset allocation. The analysis is extended to investigate how retirement asset investment decisions are made in married households. Initial results suggest controlling for demographic, income, and wealth differences lead to no significant difference in the proportion of retirement assets held in stocks between women and male faculty. For married households with joint investment decision making, results indicate that gender differences are a significant factor in explaining individual retirement asset allocation. Our estimates imply that women faculty are more risk averse than their male spouse. ( JEL J16, G11, D10)     

Bounded rationality and consumer choice: an evaluation of consumer choice of mobile bundles

Although numerous prior studies have examined consumer valuations in bundling transactions from a theoretical perspective, relatively few have focused on large datasets. In addition, little prior research has targeted developing telecommunication markets. To address these gaps in the literature, we examine the rationality of consumers' bundling choices in the mobile telecommunication industry, using operational data from China Telecom. We compare the current prices paid by consumers to the optimal prices of alternative bundling plans, based on the consumers' actual usage. We determine whether bundling choice is affected by risk aversion, the complexity of the bundle, and learning effects. The findings suggested that many users chose sub-optimal bundles that were more expensive than others were. The results showed that consumers were risk averse, and they were more likely to make non-optimal bundle selections with more complex usage patterns. No significant differences were found according to gender, age, or usage level.     

The shadow of the past: Financial risk taking and negative life events

Based on data from the four 2004–2010 waves of the US Health and Retirement Study (HRS), we show that financial risk taking is significantly related to life-history negative events out of an individual’s control. Using observed portfolio decisions to proxy for risk taking, we find correlation with two of such individual-specific events: having been victim of a physical attack and (especially) the loss of a child are associated with lower and less frequent investments in risky assets, with an intensity similar to that of the beginning, in 2008, of a collectively experienced event such as the recent financial crisis. We also find evidence that the correlation of risk taking with a child loss is long-lasting, as opposed to the correlation with a physical attack that disappears after few years. Our analysis is more in favor of a preference-based – rather than a belief-based – explanation of the observed change in risk taking. Overall our findings indicate that the past, especially through the loss of a child, casts a long shadow that extends over individuals’ current decisions also within unrelated domains.     

Does patience matter in marriage stability? Some evidence from Italy

Time preferences can affect divorce probability by both affecting the quality of the match and affecting the spouses’ reactions to negative shocks. We analyse the relationship between time preferences and divorce decisions using data from the Italian Survey on Household Income and Wealth, which provides a measure of time preferences based on a hypothetical financial situation in which individuals have to decide how much money to give up in order to receive a certain amount of money immediately rather than in one year’s time. By controlling for a number of individual and family characteristics, we find that impatient individuals are more likely to experience divorce. The effect is robust to different specifications of our model and is not affected by reverse causality problems. We also find that the more risk averse individuals are, the less likely they are to experience divorce.     

ECONOMIC SEARCH: AN EXPERIMENTAL STUDY

This paper presents results of experiments designed to test several of the hypotheses present in the theoretical literature on "optimal" economic search. First we test whether the subjects (searchers) actually search for wages in ways that are consistent with setting an optimal reservation wage. We then proceed to determine experimentally the effects of risk aversion, increased search costs, changes in risk (brought about by a mean-preserving transformation of the distribution of wage offers), the presence or absence of recall, the existence of a finite horizon, and the searcher's state of knowledge about the underlying distribution of wages. In general, we find that the searchers exhibit behavior that is consistent with that predicted by theory. Differences between risk neutral and risk averse searchers are found, and the responses of both groups to changes in search costs, in the degree of risk, or in the state of knowledge are consistent with theoretical predictions.     

AMBIGUOUS SOLICITATION: AMBIGUOUS PRESCRIPTION

We conduct a two‐phase laboratory experiment, separated by several weeks. In the first phase, we conduct urn games intended to measure ambiguity aversion on a representative population of undergraduate students. In the second phase, we invite the students back with four different solicitation treatments, varying in the ambiguity of information regarding the task and the payout of the laboratory experiment. We find that those who return do not differ from the overall pool with respect to their ambiguity aversion. However, no solicitation treatment generates a representative sample. The ambiguous task treatment drives away the ambiguity averse disproportionally and the detailed task treatment draws in the ambiguity averse disproportionally. Finally, the standard laboratory recruitment e‐mail disproportionately draws in those who are not ambiguity averse. (JEL A12, C81, C90)     

Child care burden and the risk of child maltreatment among low-income working families

Studies suggest that a substantial proportion of low-income working mothers experience work disruptions and parental stress related to child care, which may lead to increases in the risk of physical and psychological abuse and neglect of children. However, little research has examined the relationship between child care burden and the risk of child maltreatment among low-income working families. Using the Fragile Families and Child Wellbeing Study 3-year data, this study explores how child care burden is associated with the risk of child maltreatment (physical aggression, psychological aggression, and neglectful behavior) among low-income working mothers. We find that instability in child care arrangements is likely to increase mothers' physical and psychological aggression, while not having someone reliable for emergency child care is likely to increase mothers' neglectful behaviors. Findings also show that the risk of child maltreatment related to child care burden measures is more significant for single mothers than married mothers. Potential policy implications are discussed.     

Who Supports Marketization and Democratization in Post-Communist Romania?

The post-1989 change in former Communist societies in East and Central Europe is generally viewed as a double transition involving both marketization (removal of state hegemony over the economy)anddemocratization (move to a Western-style liberal democracy). Data from a nationwide survey of Romania in 1993 demonstrates that Romanians in fact distinguish two reform dimensions—marketization and democratization—as opposed to a single pro-Westernization dimension. Though Romanians distinguish marketization and democratization conceptually, support for reform in both instances is strongest among the same segments of the population: the young, the better educated, men, and those living in cities. Further analysis reveals that the effects of age, gender, and urban residence (but not education) largely wash out once the effects of risk aversion, individualistic ideology, and personal economic expectations are controlled for. Risk aversion is an especially important mediating variable. Men, the young, and those in cities are more likely to support marketization and democratization in large part because they tend to be less averse to risk.     

Risk Aversion,Shortage Economy,and Gender Differences in Religious Activities in China

The vast majority of studies in the sociology of religion show that women are more religious than men. We test a rather controversial conclusion that these differences stem from gender differences in risk aversion. Utilizing Yang's shortage economy perspective on religion in China, we argue that risk is inherent in gray market religious activities. From the risk aversion perspective, we hypothesize that women should participate in gray market less than men. Using the 2007 Spiritual Life Survey, a study of 7,021 respondents in the People's Republic of China, we model gender differences in the number of reported gray market religious activities during the previous 12 months. Our analysis fails to find support for the risk aversion hypothesis. We find that women report significantly more gray market activities than men, even after controlling for a variety of theoretically important variables. Implications for theory and research are discussed.     

Income in jeopardy: How losing employment affects the willingness to take risks

Identifying the determinants of risk-taking is crucial for our understanding of a variety of choices. Using German panel data, we find that people become more risk-averse when losing work. The immediate income loss does not mediate this effect. It seems also unrelated to the loss of non-monetary benefits of work and to changes of worker’s emotional state. However, we find that risk aversion responds the more strongly to losing work the more future income is at stake, and that the effect manifests itself already on the eve of job loss when people do not yet suffer from the consequences of the event. We conclude that lower future income expectations and more uncertainty about future incomes may explain the effect of job loss on risk attitude. Our results might imply that a recession may reinforce itself as it induces people to fear job loss, which raises their risk aversion and might therefore reduce the willingness to invest in risky projects. Moreover, self-assessed risk attitude seems to measure absolute risk aversion and thus not only an underlying risk preference parameter.     

Marriage and the economic status of women with children

Marriage is positively correlated with income, and women with children are much less likely to be in poverty if they are married. Selection into marriage makes it difficult to assess whether these correlations represent a causal effect of marriage. One instrument for marriage proposed in past research is the gender of a woman’s first child. We find that women who have a boy first are about 0.33 percentage points more likely to be married at any point in time. This effect operates through both increasing the probability that unmarried mothers marry the child’s father and reducing the probability of divorce. We also find that women whose first child is a boy experience higher levels of family income and are less likely to receive welfare income, be below the poverty line, and receive food stamps. Estimates using child gender as an instrumental variable for marriage suggest that marriage plays a large causal role in improving the economic well-being of women with children and that these effects are largest among women at the lower end of the income distribution.     

Mother’s autonomy and child’s secondary schooling enrollment in Mexico

We extend the literature on female autonomy along two dimensions. We first develop a new, direct female autonomy index using survey responses of spouses to a variety of household decision-making questions. We then examine the effects of a mother’s autonomy on her child’s secondary enrollment. We find that our measure is consistent with some of the existing autonomy measures, and that higher autonomy of mothers is correlated with higher secondary enrollment for boys, but not girls. Our results are robust to a range of sensitivity tests.     

An emerging transnational industrial relations? Exploring the prospects for cross‐border labour bargaining

Global union federations (GUFs) and multinational enterprises (MNEs) have been concluding “international framework agreements” (IFAs) to protect their interests amidst the globalizing economic landscape. By modelling the underlying bargaining processes, the authors show that IFAs can be expected when both sides exhibit risk aversion, although the agreement will favour the less risk‐averse side. Since globalization has created fewer vulnerabilities for MNEs than for GUFs, IFAs have so far typically delivered only minimal benefits for labour. But this should change in the future if strengthened transnational union capacities and abilities to threaten MNEs with reputational costs bring greater equalization of attitudes towards risk.