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Cultural Differences in Risk Tolerance

Risk aversion is of great importance on a microeconomic and a macroeconomic level. First of all, risk aversion is an important factor in explaining many everyday decisions. Among these are decisions to invest money in different types of assets, the decision to enter the labour market and others like the decision to move (Guiso and Paiella, 2004). As risk tolerance is so important in life, one asks which determinants can explain different attitudes towards risk. The question is then how risk averse people or special groups are. Several studies show different risk attitudes with respect to gender, age, income, and wealth (see e.g. Dohmen et al., 2011). 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 with respect to certain characteristics. The estimations show that the cultural background does indeed have some impact on risk taking behaviour. Thus, both Protestants and atheists tend to be less risk averse than people with other religions or denominations. Furthermore, foreigners are less likely to be risk prone. This applies also for specific nationalities like Turks, Italians, Greeks, and Ex-Yugoslavs.