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Growth, Entrepreneurship, and Risk-Tolerance: A Risk-Income Paradox

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Ranoua Bouchouicha
Ranoua Bouchouicha
Ranoua Bouchouicha
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Ferdinand M. Vieider
Ferdinand M. Vieider
Ferdinand M. Vieider
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Recent papers have modeled the prevalence of risk-tolerance as shaped by growth, making testable predictions about the distribution of risk-tolerance across the globe. We test these predictions using a dataset containing a survey question capturing people’s risk-tolerance for representative samples from 78 countries. We find a negative between-country correlation between risk-tolerance and GDP per capita. Together with the positive within-country correlation between risk-tolerance and income, this results in a risk-income paradox. We further find a negative interaction effect of risk-tolerance and GDP on fertility. These findings provide support for endogenous-preference models of economic growth.
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Journal of Economic Growth (2019) 24:257–282
https://doi.org/10.1007/s10887-019-09168-0
Growth, entrepreneurship, and risk-tolerance: a risk-income
paradox
Ranoua Bouchouicha1
·Ferdinand M. Vieider2
Published online: 22 May 2019
© Springer Science+Business Media, LLC, part of Springer Nature 2019
Abstract
Recent papers have modeled the prevalence of risk-tolerance as shaped by growth, making
testable predictions about the distribution of risk-tolerance across the globe. We test these
predictions using a dataset containing a survey question capturing people’s risk-tolerance
for representative samples from 78 countries. We find a negative between-country correla-
tion between risk-tolerance and GDP per capita. Together with the positive within-country
correlation between risk-tolerance and income, this results in a risk-income paradox.Wefur-
ther find a negative interaction effect of risk-tolerance and GDP on fertility. These findings
provide support for endogenous-preference models of economic growth.
Keywords Risk-tolerance ·Development ·Growth ·Risk-income paradox
JEL Classification D01 ·D03 ·D81 ·E03 ·O10
1 Introduction
Individual preferences play a central role for economic decisions and outcomes. Recently,
a consensus has started to emerge that preferences are malleable, abandoning the ‘black
box’ idea that we do not care about where supposedly unchangeable preferences come from
The experimental validation contained in this paper was financed by the German Science Foundation (DFG)
as part of project VI 692/1-1 on “Risk preferences and economic behavior: Experimental evidence from the
field”. We are grateful to Matthias Doepke, Oded Galor, Thomas Dohmen, Thomas Epper, and to five
anonymous referees for constructive and helpful comments. All errors remain our own.
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10887- 019-
09168-0) contains supplementary material, which is available to authorized users.
BFerdinand M. Vieider
ferdinand.vieider@ugent.be
Ranoua Bouchouicha
r.bouchouicha@reading.ac.uk
1Henley Business School, University of Reading, Reading, UK
2Department of Economics, Ghent University, Ghent, Belgium
123
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
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