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Peer Effects in Risk Aversion and Trust

Review of Financial Studies, 2014, vol. 27(11): 3213-3240.

69 Pages Posted: 16 Jun 2012 Last revised: 30 Mar 2016

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Ran Duchin

University of Washington - Michael G. Foster School of Business

Tyler Shumway

University of Michigan at Ann Arbor, The Stephen M. Ross School of Business

Date Written: May 7, 2014

Abstract

Existing evidence shows that risk aversion and trust are largely determined by environmental factors. We test whether one such factor is peer influence. Using random assignment of MBA students to peer groups and predetermined survey responses of economic attitudes, we find causal evidence of positive peer effects in risk aversion and no effects in trust. After the first year of the MBA program, the difference between an individual and her peers' average risk aversion is only 41% as large as the difference was before starting the MBA. Finding no peer effects in trust is consistent with recent research showing that distinct cognitive processes govern risk aversion and trust.

Keywords: Peer effects, risk aversion, trust

JEL Classification: D81, D83, D01

Suggested Citation

Ahern, Kenneth R. and Duchin, Ran and Shumway, Tyler, Peer Effects in Risk Aversion and Trust (May 7, 2014). Review of Financial Studies, 2014, vol. 27(11): 3213-3240.. Available at SSRN: https://ssrn.com/abstract=2085009 or http://dx.doi.org/10.2139/ssrn.2085009

Kenneth Robinson Ahern (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~kahern/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ran Duchin

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Tyler Shumway

University of Michigan at Ann Arbor, The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-4129 (Phone)
734-936-0274 (Fax)

HOME PAGE: http://www.umich.edu/~shumway

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