Peer effects in risk aversion.

Area of Science:

• Behavioral Economics
• Sociology
• Developmental Psychology

Background:

• Understanding the determinants of economic preferences, particularly risk attitudes, is crucial for economic modeling and policy.
• Peer effects are increasingly recognized as a significant factor influencing individual behavior and preferences during adolescence.

Purpose of the Study:

• To estimate the impact of peer risk attitudes on individual risk aversion among high school students.
• To investigate the stability and origins of economic preferences, specifically risk-taking behavior.

Main Methods:

• Utilized survey data on relative risk aversion from high school students.
• Employed instrumental variables strategy, controlling for school-grade fixed effects, to identify peer effects.
• Leveraged the constraint that parents cannot choose specific classes within schools for identification.

Main Results:

• Found a significant and large effect of peers' risk attitudes on male students' risk aversion.
• A one standard deviation increase in group risk aversion led to a 43% increase in individual risk aversion.
• Peer effects were identified as a key determinant of economic preferences in this demographic.

Conclusions:

• Peer influence plays a substantial role in shaping adolescent males' risk attitudes.
• These findings contribute to understanding the formation and persistence of economic preferences.
• The study underscores the importance of social context in economic decision-making.