Determinants of risk tolerance

Abstract

Risk aversion is an important factor in explaining many everyday decisions. Thus, one asks which determinants can explain different attitudes towards risk. Several studies show different risk attitudes with respect to gender, age, income, and wealth (e.g. [19]). While these findings are hardly controversial, there is still some uncertainty about the effect of culture on risk tolerance. Thus, the main issue of this survey is to elaborate possible differences in risk preferences that are caused by cultural background. The main question in this context is whether religion or nationality are of importance for explaining risk attitudes. For this purpose, this study employs the German Socio-Economic Panel (GSOEP) to figure out differences in risk attitudes. Another contribution of this article is that is uses a generalized ordered logit model while others use simple linear regression models or simple logit or probit models which are not efficient. The estimations show that the cultural background does indeed have some impact on risk taking behaviour.