Schooling and small stakes risk aversion: Insights from a rural-poor community

• Published in: Economics letters Vol. 207; p. 110040
• Main Author: Fakir, Adnan M.S.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.10.2021; Elsevier Science Ltd
• Subjects: Attitudes; Bangladesh; Behavioral responses; Expected utility; Neutrality; Rabin critique; Risk; Risk aversion; Risk experiment; Wealth; Risk aversion; Bangladesh; Risk experiment; D03; C93; D81; Expected utility; Rabin critique
• ISSN: 0165-1765; 1873-7374
• DOI: 10.1016/j.econlet.2021.110040

A risk experiment is conducted with 900 rural-poor subjects from Bangladesh to test the empirical basis for Rabin (2000)’s critique. By varying lab wealth within-subjects, this study provides additional evidence on whether subjects appear to be too risk-averse with regard to small-stakes gambles. I find risk aversion for low levels of lab wealth and insignificant distinction of risk aversion for high levels of lab wealth. Segregating the sample by schooling, while subjects with no schooling exhibited moderate levels of risk aversion throughout the experiment range, subjects with some formal schooling exhibited risk neutrality (or preference) for high levels of lab wealth. The latter result rejects the empirical basis for the critique. The findings stress the importance to better understand diverse risk attitudes to predict behavioral responses to interventions adequately. •The experiment tests the empirical relevance of Rabin’s calibration critique.•Subjects are 900 adult males from a rural-poor region of Bangladesh.•Lottery choices involve economically-important observable additions to wealth.•Full sample results reject empirical relevance of payoff-calibration patterns.•Uneducated subjects exhibit concavity-calibration; subjects with schooling do not.