Cultural Change, Risk-Taking Behavior and the Course of Economic Development

Abstract:     
This research studies the dynamic interplay between the evolution of cultural traits in the form of differences in risk attitudes and the process of economic development. In order to study this joint evolution of cultural and economic variables, an innovation based growth model is integrated with a cultural transmission mechanism, displaying how parents shape the risk attitudes of their children in response to economic incentives. The model predicts that a society in which the material benefits associated with risk taking are high, will develop more risk tolerant attitudes, which in turn will speed up the rate of economic growth. Based on data on risk attitudes of pairs of children and their parents, empirical evidence supporting this relationship between economic incentives and risk attitudes is provided.

Number of Pages in PDF File: 35

Keywords: Innovation-Based Growth, Risk Aversion, Cultural Transmission, Earnings Premia

JEL Classification: D81, J13, J62, O30, O40, Z10

working papers series