School environment and risk preferences: Experimental evidence

Abstract

Using a field experiment with high school students, we evaluate the development of risk preferences. Examining the impact of school characteristics on preference development reveals both peer and quality effects. For the peer effect, individuals in schools with a higher percentage of students on free or reduced lunches (hence a higher proportion of low-income peers with whom to interact) are significantly more risk averse. For the quality effect, individuals in schools with smaller class sizes and a higher percentage of educators with advanced degrees have higher, more moderate levels of risk aversion. We further discuss economic, cognitive and emotional development theories of risk preferences. Data show demographic-related patterns: girls are more risk averse on average, while taller and nonwhite individuals are more risk tolerant.