The development of risk aversion and prudence in Chinese children and adolescents

• Published in: Journal of risk and uncertainty Vol. 61; no. 3; pp. 263 - 287
• Main Authors: Heinrich, Timo, Shachat, Jason
• Format: Journal Article
• Language: English
• Published: New York, NY Springer US 01.12.2020; Springer; Springer Nature B.V
• Subjects: Adolescents; Age effects; Benchmarks; Children; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Environmental Economics; Experimental economics; Microeconomics; Operations Research/Decision Theory; Prudence; Risk; Risk aversion; Risk preferences; Teenagers; Transmission of preferences; China; Risk aversion; Prudence; Age effects; Experimental economics; Transmission of preferences; Children; C93; D81; J13
• ISSN: 1573-0476; 0895-5646; 1573-0476
• DOI: 10.1007/s11166-020-09340-7

This study experimentally evaluates the risk preferences of children and adolescents living in an urban Chinese environment. We use a simple binary choice task that tests risk aversion, as well as prudence. This is the first test for prudence in children and adolescents. Our results reveal that subjects from grades 5 to 11 (10 to 17 years) make mostly risk-averse and prudent choices. The choices of 3rd graders (8 to 9 years) do not differ statistically from risk neutral benchmarks, but at the same time they make mostly prudent choices. We also find evidence for a transmission of risk preferences. There is positive correlation between all children's and their parents' tendency to make risk-averse choices. There is also positive correlation between girls' and their parents' tendency to make prudent choices.