 AZ
 Jena Economic Resea...
 Volume 5
 The Analysis of Ris...
 Pictured person
 Published
 Fri Dec 23 2011
 Number of discussion paper

2011069
 keyword(s)

Multiple Equation Models
Panel Data
Risk Attitude
 abstract

The determinants of risk attitude amongst family members are explored using data from the German SocioEconomic Panel over the period 2004 to 2009. The focus of the analysis is the repeated responses to the survey question about general willingness to take risk. Responses to this question are provided on a 010 Likert scale. We respect both the ordinality and the panel structure of the data by estimating the random effects ordered probit model. We divide household members into thee types: heads, spouses and offspring. Of the three types, we find that spouses are the most risk averse, and offspring the least risk averse. In view of these findings, we estimate the model separately for the three groups and find different results between the three. For example, household income has a positive effect (on risktaking) for heads and spouses (particularly strong for spouses), but no effect on offspring. Some effects are similar between the the three groups; for example, risk aversion always increases with age. In the offspring equation, we include both the head’s and the spouse’s risk attitude as explanatory variables, and find that both have a significantly positive effect on the offspring’s riskattitude, indicating that children tend to inherit the risk attitude of their guardians. We then focus on couples in the data set, and we apply the random effects bivariate ordered probit model to the analysis of the simultaneous determination of the male’s and the female’s risk attitude. In this model, the individualspecific effects for the male and the female are assumed to have a nonzero correlation, which is estimated to be +0.412. This significantly positive correlation is interpreted as a form of homophily: individuals tend to form partnerships with others having a similar risk attitude. The importance of respecting the ordinality of the data is confirmed when a straightforward (linear) seemingly unrelated model is applied to the same problem; this gives a correlation of only +0.27: a seriously downwardbiased estimate of this key parameter.
 article pub. typess JER
 Research article
 article languages JER
 Englisch
 JELClassification for JER
 C33  Models with Panel Data ; D81  Criteria for DecisionMaking under Risk and Uncertainty