Risk attitudes and asset diversification: Evidence from Ghana

Abstract

Attitudes toward risk influence an individual's decision‐making with significant implications for economic outcomes and yet there is limited understanding of the relationship between risk attitude and economic decision‐making in developing countries. This paper estimates the influence of risk aversion on asset diversification using data from a large nationally representative sample of Ghanaian households. The results show weak association between risk aversion and asset diversification. Furthermore, relatively stronger positive associations are found for rural compared with urban households, but these positive associations disappear after controlling for locality fixed effects. These findings highlight the importance of addressing rural–urban disparities.