Educational choice and risk preferences: How important is relative vs. individual risk preference?

Abstract

The primary goal of this article is to examine the influence of relative vs. individual risk preference in educational choice. To do so, we discuss relative risk preference in prospect theory and in sociological models of educational choice and debate the notable but widely neglected importance of individual risk preferences for educational plans and decisions. We analyze these different forms of risk preference and demonstrate how they influence the intentions for further education of students attending Gymnasium, the academically oriented secondary school track in Germany. Using data collected from the German Socio-Economic Panel Study (SOEP) youth questionnaire in the years 2003 to 2012, we find not only that students from a higher socio-economic background are less sensitive to their school performance but also that their individual risk preferences are completely irrelevant to their educational plans. The opposite applies to students from a lower socio-economic background: the more risk-averse they are, the less likely they are to opt for a university degree. Most importantly, we find support for the notion of relative risk-seeking in upper social classes and relative risk aversion in lower classes.