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

Abstract

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.

The role of demographics on adolescents’ preferences for risk, ambiguity, and prudence

“…In adolescents, most studies have not found any age effects on risk ( Sutter et al, 2019 ;, Eckel et al, 2012Munro and Tanaka, 2014 ), ambiguity 6 ( Sutter et al, 2013 ), nor prudence ( Noussair et al, 2014 ). Heinrich and Shachat (2018) showed a significant effect of school grade on prudent behavior, implying that prudence increased with age, but as the school type and level were not consistent over their sample, Trautmann and van de Kuilen (2018) indicated in their review on higher-order risk attitudes that these results should be interpreted with caution.…”

“…This number is higher than in Sutter et al (2013 , 3 percent of multiple switchers in their adolescent sample) but much lower than 25% of inconsistent choices in Cardenas et al (2012) . Compared to adult samples, this percentage is very comparable ( Becker et al, 2012 ;Hogarth and Villeval, 2014 ). As multiple switches could indicate misunderstanding, we include multiple switchers as a categorical variable to our regression models and we re-ran all our main analyses on the sample of participants who only switch once.…”

“…Except for one working paper on the transmission of risk preferences and prudence between children and their parents ( Heinrich and Shachat, 2018 ), prudence has not been investigated in adolescence 5 . While relatively few experimental studies have elicited prudence in participants, all have reached the same conclusion: people are generally prudent ( Tarazona-Gomez, 2004 ;Deck and Schlesinger, 2010 ;, Ebert and Wiesen, 2011, Maier and Rüger, 2011, Noussair et al, 2014, Breaban et al, 2016Haering et al, 2017 ;Ebert and van der Kuilen, 2017 ).…”

“…Although most studies on prudence( Tarazona-Gomez, 2004 ;Deck and Schlesinger, 2010 ;, Ebert and Wiesen, 2011, Maier and Rüger, 2011, Noussair et al, 2014 used student samples, which partly also consist of 18-19-year-olds. Our study and the working paper byHeinrich and Shachat (2018) used an exclusive sample of adolescents.6Li et al (2015) andTymula et al (2012) compared children (8-9-year-olds inLi et al, 2015 ) and adolescents (12-17-year-olds inTymula et al, 2012 ) to an adult sample and both found that ambiguity aversion peaked in adults, but did not study the effect of age during adolescence.…”

Higher Order Risk Preferences: New Experimental Measures, Determinants and Field Behavior

“…While risk aversion has been studied extensively in this age group (Sutter et al, 2019), for prudence and temperance the evidence is scarce or non-existent. Heinrich and Shachat (2018) study prudence among 362 Chinese children and adolescents, aged 8 to 17 years, by counting the number of prudent decisions from three binary choice tasks. They investigate determinants of risk aversion and prudence and examine transmission of choices from parents to their children.…”