A Study of the Impact of Economics Education on Financial Risk Aversion

Abstrakt

This paper seeks to study the effect of education in an economics-related field on financial risk tolerance and investigate potential drivers related to this effect. The study does find an estimate suggesting that economists invest 24 percentage points more of their liquid assets in stocks, but the coefficient is statistically insignificant. An analysis of the age patterns of economists and non-economists, respectively, reveals that for both groups, risk tolerance increases with age until the age of 52 and then decreases moderately until retirement. The results suggest that stock market experience is the main driver behind the increase in risk tolerance, while the decrease in the number of remaining pay checks in the main driver behind the subsequent decrease in risk tolerance. In addition, overconfidence, stock market experience, and the number of remaining pay checks are found to be more important in determining financial risk tolerance than financial literacy and analytical abilities. The study concludes that no significant difference is to be found between economists and non-economists. However, economists are found to be more likely to participate in the stock market.