Further examination of the demographic and social factors affecting risk aversion
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Further examination of the demographic and social factors affecting risk aversion Tchai Tavor1 · Sharon Garyn-Tal1
Published online: 1 February 2016 © Swiss Society for Financial Market Research 2016
Abstract In this paper we examine how social and demographic factors explain risk aversion. Specifically, we focus on how an individual’s place of residence effects his level of risk aversion. Israel is a natural experiment field for such an investigation since the majority of its population lives either in big or small cities, moshavs, or kibbutzim, where the last two forms of settlement being unique to Israel. The kibbutz follows the prototype of a collectivist culture; the moshav follows the prototype of an individualistic culture. This environment also allows us to reexamine the contradiction between the “cushion hypothesis” and previous findings regarding the risk aversion of Israeli kibbutz residents. In general, we find that the moshav respondents demonstrate the lowest level of risk aversion and the kibbutz (and the small city) respondents demonstrate the highest. However, further examination reveals that the risk aversions are domain specific. The urban residents of both big and small cites are similar to each other than they are to residents of the kibbutz and the moshav, who, in turn, are more similar to each other than they are to the urban residents. For example, kibbutz and moshav respondents are less risk averse in insurance and gambling, but more risk averse in driving and sport, compared to urban residents. Interestingly, on average, the respondents demonstrate the highest level of risk aversion for extreme sports and the lowest level of risk aversion for irresponsible driving.
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Tchai Tavor [email protected] Sharon Garyn-Tal [email protected]
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Department of Economics and Management, The Max Stern Yezreel Valley Academic College, 19300 Emek Yezreel, Israel
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T. Tavor, S. Garyn-Tal
Keywords Risk aversion · Place of residence · Collective and individualistic cultures · The cushion hypothesis JEL Classification
G00 · J1 · Z1
1 Introduction Risk aversion is one of the main factors that decrease the propensity for risky behavior, and so it is important to understand what determines and contributes to an individual’s level of risk aversion. Risk perception is among the main factors shaping an individual’s level of risk aversion and thus his willingness to take risks. Risk perceptions vary considerably across individuals and previous research suggests several individual characteristics as explanatory variables: gender and race (Levin et al. 1988; Gwartney-Gibbs and Lach 1991; Gutteling and Wiegman 1993; Stern et al. 1993; Arch 1993; Flynn et al. 1994; Byrnes et al. 1999; Finucane et al. 2000; Andresen 2000; Siegrist et al. 2002) and personality characteristics such as sensation seeking (Zuckerman 1979, 1991), impulsiveness (Eysenck and Eysenck 1977), and decision-making style (Franken 1988). In addition, another explanatory variable is an individual’s experience and familiarity with
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