Document Type : Research Paper
Authors
1 Associate Professor, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran
2 Assistant Professor, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran
3 M.A. in Economics, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran
Abstract
Risk and uncertainty are key factors in making economic decisions. Since individual attitudes towards risk can greatly influence choices, it is crucial to understand the determinants of such preferences in order to predict and comprehend individuals’ behavior. The present study aimed to investigate the impact of several factors on individuals’ attitudes towards risk, specifically the degree of risk aversion, by examining individuals’ optimism and patience (time preference). The study used a questionnaire to collect data from a sample of 304 individuals in Iran selected through random sampling. The research method was a multivariate regression model. The findings indicated that both optimism and income have a significant negative effect on risk aversion, while age has a significant positive effect. Furthermore, the study found that patience does not have a significant impact on risk aversion.
Introduction
Risk and uncertainty are critical factors that heavily influence most economic decisions, including investment, education, employment, and the decision to buy a house or insurance. Such decisions involve an element of risk, so they are highly influenced by individuals’ attitudes towards risk. In developing countries, such as Iran, most individuals typically experience unstable incomes, limited access to insurance, and possess few assets to cushion the impact of severe economic shocks. As a result, individuals in these circumstances are more exposed to risk, and these factors can significantly influence their attitudes towards risk. Understanding the determinants of these preferences is crucial to comprehending and predicting people’s behavior, as different attitudes towards risk lead to different choices. The present study was to examine how certain factors, such as optimism and patience (time preference rate), influence individuals’ attitudes towards risk. In addition, socio-economic variables were included as control variables to account for their potential impact.
Materials and Methods
To gather data on individuals’ degrees of risk aversion, optimism, and patience, this study used a questionnaire based on internationally recognized surveys. The model was then estimated by the general multivariate regression through the ordinary least squares (OLS) method.
Results and Discussion
The descriptive information related to demographic variables is presented in Table 1.
Table 1: Frequency distribution of demographic s
Variable
Variable level
Frequency
Relative Frequency
Gender
Male
155
49
Female
160
51
Total
315
100
Marital status
Single
219
70
Married
96
30
Total
315
100
Age
Less than 20 years
16
5
Between 20-30 years
172
55
Between 30-40 years
100
32
Above 40 years
27
8
Total
315
100
Level of education
High school
4
1
Diploma–BA
99
31
BA–MA
139
44
MA–PhD
73
23
Total
315
100
Employment status
Unemployed
51
16
Retired
1
0
Housewife
27
9
School student
7
2
University student
131
42
Employed
98
31
Total
315
100
The economic situation
Income below 1 million Tomans
112
36
Income between 1–3 million Tomans
106
37
Income between 3–6 million Tomans
63
20
Income above 6 million Tomans
34
11
Total
315
100
Source: research findings
Model Estimation
The OLS method was used to estimate the model.
Table 2. Model estimation results
RA The dependent variable
probability
t-stat
Coefficients
Variables
0.00
-3.71
-0.027 * * *
Optimism
0.002
3.07
0.0003 * * *
Wealth
0.000
-63.6
0.29 * * *
Income
0.418
-0.81
-0.017
Patience
0.024
-26.2
-0.19 * *
Gender
0.022
2.31
0.23 * *
Single
0.000
5.63
0.044 * * *
Age
0.215
1.24
0.06
Education
0.000
75.5
2.16 * * *
_Cons
29.13
F(8,295)
304
Number of obs
0.000
Prob > F
0.44
R-squared
0.63
Root MSE
0.42
Adj R-squared
* The coefficient is significant at 10 % level, * * The coefficient is significant at 5 % level and *** The coefficient is significant at 1 % level.
Source: research calculations
The Brush-Pagan and VIF test show that there is no heteroskedasticity and collinearity at estimated residuals.
As shown in the table, as the individual’s level of optimism increases, their degree of risk aversion decreases, which is consistent with previous research conducted by Felten and Gibson (2014) and Duhman et al. (2018). In addition, the study found that wealth has a direct and significant impact on risk aversion in Iran, which aligns with the findings of Agassi et al. (2015) and Qanbili (2016). However, this result contradicts the research conducted by Ronald and Grable (2010), and therefore, the effect of wealth on risk aversion warrants further discussion and reflection.
Previous research suggests that there is a likelihood that the effect of wealth on risk aversion in Iran may be opposite to that observed in other countries. This could potentially be attributed to errors in measuring wealth In Iran, where information regarding individuals’ assets and wealth is often unclear. In this respect, the present study relied on indicators such as car and house ownership and their estimated values, which were self-reported by the participants and might be subject to bias.
The study findings indicated that income has a significant and negative impact on risk aversion in Iran, which is aligned with previous research conducted by Wright (2012; 2014) and Shah et al. (2020). Moreover, it was found that gender has a significant effect on risk aversion, with females being more risk-averse than males. This finding is consistent with Banir and Newbert (2016), Hosseinnejad and Haddadi (2016), and Mohammadi-Majed (2018).
The findings also revealed that age has a significantly positive impact on risk aversion in Iran, which is in line with the results of Dankers and Van Suest (1999) and Menadia et al. (2016). Finally, the results showed that time preference rate and education do not have a significant impact on risk aversion in Iran.
Conclusion
This research examined the impact of several factors on individuals’ risk aversion in Iran. The investigation of the research hypotheses demonstrated that variables such as optimism and income have a significantly inverse relationship with risk aversion, with higher levels leading to decreased risk aversion. Wealth and age have a significantly positive impact on risk aversion, with higher levels leading to increased risk aversion. Furthermore, the variables of time preference rate and education were found to have no significant effect on risk aversion in Iran. The study also found that married individuals are more risk-averse than single ones, and females are more risk-averse than males.
The results indicated that young people, males, and the individuals with higher incomes and lower wealth tend to accept risk more readily. The findings can provide fresh insight for investment consulting and insurance companies in Iran.
Keywords
Main Subjects
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