Elicited Risk and Time Preferences: Role of Demographics, Cognition, and Interviewers (Job Market Paper)
I find survey-elicited risk and time preferences to be systematically related to respondent demographics, cognition, and interviewer characteristics, in the Indonesian Family Life Survey. Men are less risk averse than women, older respondents are more impatient, wealthier respondents are less risk averse and less impatient, more highly educated adults are less impatient, and adults with better cognitive capacity proxied by episodic memory are less impatient.
The elicitation modules identify individuals with nonstandard preferences, in that they choose a dominated payoff even when the alternative payoff is as good or better. Measures of cognitive capacity are associated with the likelihood of having nonstandard preferences in expected ways. Respondents with better episodic memory are less likely to be nonstandard. Better educated respondents are less likely to be nonstandard, in some cases.
I find strong evidence that interviewer characteristics affect elicited preferences. In particular, where interviewers and respondents do not share a daily spoken language, respondents are more likely to show nonstandard preferences. This effect is found only in interviews conducted in languages other than the national language. However, estimates of the other explanatory variables are not changed by the inclusion of interviewer characteristics.
Risk and Time Preferences and the Transition into Adulthood: Evidence from the IFLS
Full paper coming soon
Do risk and time preferences explain the economic behavior of Indonesian adults? Using IFLS data, I look at the correlations of survey-elicited risk and time preferences with five markers of adulthood: schooling attainment, marriage, fertility timing, migration, and full-time employment.
Risk aversion and impatience are negatively associated with schooling attainment for men but not women. Married couples positively sort on risk and time preferences. However, risk and time preferences are not significantly correlated with marriage timing. Women who are more risk averse and more patient give birth later in life. Highly risk averse men are less likely to migrate. Risk and time preferences are not significantly correlated with the timing of full-time employment. However, risk aversion is negatively correlated with selection into self-employment for both men and women.
The Intergenerational Transmission of Risk Preference: Evidence from the IFLS
Work in progress
I examine one potential channel by which risk preference is formed: intergenerational transmission. Using data from the IFLS, I report robust, significant positive relationships between risk aversion of father and adult child. I do not find a significant relationship between risk aversion of mother and adult child.
I adapt a model of coinsurance to informal transfers between parent and child. The model predicts that risk sharing within the family through informal transfers is Pareto optimal if and only if both parent and child are risk averse. The model therefore offers one explanation for why parents would want to impart their attitude towards risk to their children. I speculate that Indonesian mothers may be more altruistic than their husbands, and hence may be less compelled to influence their children's risk preference.