An Empirical Analysis of Risk Aversion and Income Growth

An Empirical Analysis of Risk Aversion and Income Growth

Journal of Labor Economics. October
1996, Vol. 14, Issue 4, Pages 626-653

 Risk aversion enters many theoretical models of human capital in- vestment, but attitudes toward risk have not been incorporated in empirical models of human capital investment. This article develops a model of the joint investment in financial wealth and human wealth to show that human capital investment is an inverse function of the degree of relative risk aversion. Using data from the Survey of Consumer Finances, I find that wage growth is positively correlated with preferences for risk taking. More-educated individuals are also more likely to be risk takers, thus risk taking explains a portion of the returns to education