Risk Attitudes and Well-Being in Latin America

38 Pages Posted: 1 Nov 2010

See all articles by Juan-Camilo Cárdenas

Juan-Camilo Cárdenas

Universidad de Los Andes

Jeffrey P. Carpenter

Middlebury College - Department of Economics; IZA Institute of Labor Economics

Abstract

A common premise in both the theoretical and policy literatures on development is that people remain poor because they are too impatient to save and too risk averse to take the sort of chances needed to accumulate wealth. The empirical literature, however, suggests that this assumption is far from proven. We report on field experiments designed to address many of the issues confounding previous analyses of the links between risk preferences and well-being. Our sample includes more than 3,000 participants who were drawn representatively from six Latin American cities: Bogotá, Buenos Aires, Caracas, Lima, Montevideo, San José. In addition to the experiment which reveals interesting cross-country differences, participants completed an extensive survey that provides data on a variety of well-being indicators and a number of important controls. Focusing on risk preferences, we find little evidence of robust links between risk aversion and well-being. However, when we analyze the results of three treatments designed to better reflect common choices made under uncertainty, we see that these, more subtle, instruments correlate better with well-being, even after controlling for a variety of other important factors like the accumulation of human capital and access to credit.

Keywords: risk aversion, ambiguity aversion, loss aversion, risk pooling, well-being, Latin America

JEL Classification: C91, C93, D03, D81, O12

Suggested Citation

Cárdenas, Juan-Camilo and Carpenter, Jeffrey P., Risk Attitudes and Well-Being in Latin America. IZA Discussion Paper No. 5279. Available at SSRN: https://ssrn.com/abstract=1700448

Juan-Camilo Cárdenas (Contact Author)

Universidad de Los Andes ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia
339-4949 ext. 2473 (Phone)

Jeffrey P. Carpenter

Middlebury College - Department of Economics ( email )

Munroe Hall
Middlebury, VT 05753
United States
802-443-3241 (Phone)
802-443-2084 (Fax)

HOME PAGE: http://community.middlebury.edu/~jcarpent/index.ht

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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