Conformists or rebels? Relative risk aversion, educational decisions and social class reproduction

2012 ◽  
Vol 24 (2) ◽  
pp. 221-253 ◽  
Author(s):  
Mads M. Jæger ◽  
Anders Holm

This paper tests the theory of Relative Risk Aversion (RRA), which argues that educational decisions are intended to minimize the risk of downward social class mobility. We propose a structural model which distinguishes the instantaneous utility of educational decisions from the future utility of these decisions with respect to reproducing one’s parents’ social class position. We analyse British data and find that RRA accounts for some of the observed social class differences in educational decisions. We also find that while more than 90% of individuals derive utility from reproducing their parents’ social class position (RRA ‘conformists’), a small group of individuals experience disutility from reaching their parents’ social class position (RRA ‘rebels’). Individuals who experience disutility from reproducing their parents’ social class position are characterized by low cognitive ability and a high incidence of behavioural problems in childhood.

2021 ◽  
pp. 104346312199408
Author(s):  
Carlo Barone ◽  
Katherin Barg ◽  
Mathieu Ichou

This work examines the validity of the two main assumptions of relative risk-aversion models of educational inequality. We compare the Breen-Goldthorpe (BG) and the Breen-Yaish (BY) models in terms of their assumptions about status maintenance motives and beliefs about the occupational risks associated with educational decisions. Concerning the first assumption, our contribution is threefold. First, we criticise the assumption of the BG model that families aim only at avoiding downward mobility and are insensitive to the prospects of upward mobility. We argue that the loss-aversion assumption proposed by BY is a more realistic formulation of status-maintenance motives. Second, we propose and implement a novel empirical approach to assess the validity of the loss-aversion assumption. Third, we present empirical results based on a sample of families of lower secondary school leavers indicating that families are sensitive to the prospects of both upward and downward mobility, and that the loss-aversion hypothesis of BY is empirically supported. As regards the risky choice assumption, we argue that families may not believe that more ambitious educational options entail occupational risks relative to less ambitious ones. We present empirical evidence indicating that, in France, the academic path is not perceived as a risky option. We conclude that, if the restrictive assumptions of the BG model are removed, relative-risk aversion needs not drive educational inequalities.


2005 ◽  
Author(s):  
Pablo Muñoz Ceballos ◽  
Esteban Flores Díaz

2010 ◽  
Vol 100 (3) ◽  
pp. 1163-1194 ◽  
Author(s):  
Robert E Hall ◽  
Susan E Woodward

Entrepreneurship is risky. We study the risk facing a well-documented and important class of entrepreneurs, those backed by venture capital. Using a dynamic program, we calculate the certainty-equivalent of the difference between the cash rewards that entrepreneurs actually received over the past 20 years and the cash that entrepreneurs would have received from a risk-free salaried job. The payoff to a venture-backed entrepreneur comprises a below-market salary and a share of the equity value of the company when it goes public or is acquired. We find that the typical venture-backed entrepreneur received an average of $5.8 million in exit cash. Almost three-quarters of entrepreneurs receive nothing at exit and a few receive over a billion dollars. Because of the extreme dispersion of payoffs, an entrepreneur with a coefficient of relative risk aversion of two places a certainty equivalent value only slightly greater than zero on the distribution of outcomes she faces at the time of her company's launch. (JEL G24, G32, L26, M13)


1982 ◽  
Vol 64 (3) ◽  
pp. 481 ◽  
Author(s):  
Frederick W. Siegel ◽  
James P. Hoban

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