This paper questions the perceived wisdom that migrants are more risk-loving than the native population. We employ a new large German survey of direct individual risk measures to find that first-generation migrants have lower risk attitudes than natives, which only equalize in the second generation.Risk attitudes, Ethnicity, Native-migrant differences, Gender differences, Secondgeneration effects

Amelie Constant

Holger Bonin

Klaus F. Zimmermann

Konstantinos Tatsiramos

English

Research Papers in Economics

 
 
 
 
 
 
 
 
 
 
 
 
 
Holger Bonin 
Amelie Constant 
Konstantinos Tatsiramos 
Klaus F. Zimmermann 
 
Native-Migrant Differences in Risk Attitudes  
  
Discussion Papers 
Berlin, February 2006  
 
 
Opinions expressed in this paper are those of the author and do not necessarily reflect views of the 
Institute. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Native-Migrant Differences in Risk Attitudes* 
 
 
Holger Bonin 
IZA, Bonn 
Amelie Constant 
IZA, Bonn 
Konstantinos Tatsiramos 
IZA, Bonn 
and 
Klaus F. Zimmermann 
Bonn University, IZA, Bonn, and DIW Berlin 
 
February 21, 2006 
 
 
Abstract 
This paper questions the perceived wisdom that migrants are more risk-loving than the native 
population. We employ a new large German survey of direct individual risk measures to find that 
first-generation migrants have lower risk attitudes than natives, which only equalize in the 
second generation.  
 
 
 
JEL classification: D1; D81; F22; J15; J16; J31; J62; J82  
Keywords: Risk attitudes, ethnicity, native-migrant differences, gender differences, second-
generation effects 
 
 
* Financial support from Volkswagen Foundation for the IZA project on 'The Economics and 
Persistence of Migrant Ethnicity' is gratefully acknowledged. We are grateful to the American 
Institute for Contemporary German Studies (AICGS) in Washington to host some of us during 
the completion of this manuscript. We also wish to thank Barry Chiswick, Liliya Gataullina, 
seminar participants and the IZA-Volkswagen Ethnicity Research Team for valuable comments 
on an earlier draft. 
 
Corresponding author: 
Klaus F. Zimmermann 
IZA, P.O. Box 7240 
D-53072 Bonn, Germany 
Phone: +49 228 3894 200 
Fax: +49 228 3894 210 
Zimmermann@iza.org    1
1. Introduction 
  In this paper we investigate the widely accepted claim of low risk aversion among foreign 
nationals using unique individual German survey data on a number of new and direct measures 
on risk attitudes comparing immigrants of the first and second generation with natives. We 
define as first-generation immigrants those who were born abroad, while as second generation 
we consider those foreign nationals who were born in Germany. Contrary to the expectations 
based on the public debate, our empirical study shows that first-generation immigrants are more 
risk averse than natives, while in the second generation risk preferences appear to equalize. 
Section 2 explains the research issue, the data and the risk measures used. Section 3 outlines the 
empirical findings. Section 4 summarizes.  
 
2. Research Issue and Data  
  Migrants are typically considered to be more risk loving, mobile, talented and 
entrepreneurial than natives or at least than the population in the home country (Chiswick, 1978; 
Todaro, 1980; Zimmermann, 1995; Constant and Zimmermann, 2006). However, economic 
theory does not provide a clear prediction on the immigrants' risk attitudes. Standard migration 
models generate the prediction that migrants are less risk averse than the population in the 
country of out-migration (Heitmueller, 2005). Assuming risk aversion is negatively correlated 
with skills (Hartog et al., 2002), the self-selection models of migration (Chiswick, 1978; Borjas, 
1987) suggest a differentiated distribution of migrants where the high-skilled are less risk averse 
and the low-skilled are less risk loving. Consequently, under equal distributions of risk 
preferences in the source and destination countries, the average migrant may be more or less risk 
loving than the average native. 
The risk attitudes of immigrants and natives in the receiving country may also differ 
because there are different distributions of risk preferences in the source and destination country   2
populations, for example due to cultural differences. Even if migrants are drawn from the upper 
part of the distribution in their home country, they may still be more risk averse than the natives 
in the host country. Given this theoretical ambiguity, the extent to which the risk attitudes of 
immigrants and natives differ remains an empirical question.  
  Our analysis is based on a sample of roughly 21,000 adult individuals from the 2004 
wave of the German Socioeconomic Panel (GSOEP), which is designed to be representative of 
the German population. While the survey has been conducted since 1984, it is only in 2004 
where individuals are asked for the first time about their "willingness to take risks, in general". 
The risk question is structured around an 11-point scale from 0-10 with 10 meaning the highest 
willingness to take risks. Additionally, there are six more questions which use the same scale as 
the general risk question, but ask about the willingness to take risks in specific contexts of life: 
driving, financial portfolio, sports and leisure, career, health, and trusting strangers. The 
consistency and validity of these self-reported risk measures for actual behavior has been 
documented by Dohmen et al. (2005) in a field experiment. 
  In our data, we identify immigrants as individuals holding foreign nationality. The largest 
part of foreign nationals are 'guestworkers' from southern Europe, who moved to Germany for 
blue-collar jobs from the early 1960s on, or their descendants still carrying a foreign passport. 
Another important group among the foreign nationals is migrants who have been originating 
from eastern Europe and outside Europe from the 1980s. By defining immigrants on the basis of 
citizenship, our analysis treats ethnic Germans who have been originating from eastern Europe 
during the 1990s as natives. If risk attitudes among these immigrants carrying German passports 
were closer to those of the foreign nationals than to those of German residents, the estimated 
native-migrants differences would become smaller. Some immigrants in Germany have acquired 
German citizenship. Since these are only few, a potential bias in our empirical estimates should 
be small.   3
  To keep the analysis simple, we do not deal here with distinct ethnic groups in the 
immigrant population, but only distinguish between foreign nationals who were born abroad 
(first generation) or born in Germany (second generation).  Ethnicity is controlled for by 
including a dummy, which is equal to one if individuals have a foreign nationality, and an 
interaction of foreign nationality with the being born abroad dummy. We contrast these 
immigrants to the native population consisting of residents in western and eastern Germany. 
Since almost all foreign nationals live in the west, our reference group is western German 
natives. A dummy for living in East Germany captures the eastern German natives.  
  The covariates we use to explain the willingness to assume risk include the age of the 
respondent, years of education, body height measured in centimeters, dummies for being female, 
married, having children less than 16 years old in the household, living in eastern Germany, and 
the total net household income in 10,000s Euros. We expect that risk taking decreases with age, 
when female, married or with young children, and increases with body height, years of 
education, and household income.  
  
3. Empirical Results 
  In Table 1 we provide the estimation results for all indicators of risk attitudes. Missing 
values lead to different sample sizes in the various estimates. We report OLS estimates, since the 
results are behaviorally robust in comparison to more advanced techniques like the ordinal probit 
model but are easier to interpret. For all types of risk attitudes, the estimated impact of key socio-
demographic characteristics is generally in line with our expectations. The sample exhibits 
strong and positive effects of years of education and household net income on all types of risk 
attitudes, and females and married individuals show consistently negative and significant effects. 
Individuals with young children are more risk averse towards driving, financial portfolio, sports 
and leisure, career and health. However, with respect to the general risk attitude and to trusting 
strangers, they are no different from the western German reference group without young   4
children. Body height predicts a larger willingness to take risks, but not to trusting other people. 
The estimated polynomial in age always implies a significant negative marginal effect of age on 
the willingness to take risk. These results are in line with Hartog et al. (2002), DeLeire and Levy 
(2004), Dohmen et al. (2005), and Frederik (2005).  
  Anecdotal evidence considers eastern Germans to be risk averse and less market oriented. 
This is, however, not supported by our analysis. Individuals living in eastern Germany exhibit a 
higher preference for risks in general, and they are more willing to take risks with respect to 
driving, sports and leisure, career paths and health than their western counterparts. They are no 
different with respect to financial issues, but are much less willing to trust strangers than those in 
the western part of Germany. The latter finding can be seen as a left-over of socialism.  
  How different are migrants from the natives? Are risk preferences stable or do they adjust 
across generations? Table 1 shows that first-generation immigrants are less willing to take risks 
“in general” compared to western German natives. They are also more risk averse with regard to 
their financial portfolio, sports and leisure and career issues, and they are no different from 
natives in their attitudes with respect to driving, health and trusting strangers. Contrary to the 
perceived wisdom, no category points into the direction that migrants are more willing to take 
risks than the native population. There are a few potential explanations for this finding relying on 
self-selection: (i) The German welfare state has attracted low-skilled migrants, (ii) the 
'guestworker' generation was generally provided with a job when entering Germany, and hence 
their migration decision involved very little risk, and (iii) the more risk loving migrants may 
have likely returned home already or moved on to other countries. An alternative explanation 
could be that Germany may have mainly attracted migrants from source countries with a more 
risk averse population. 
Our results also show that once born in Germany, foreign nationals are undistinguishable 
from western Germans with respect to risk attitudes: all parameter estimates are not statistically 
significantly different from zero. This observation suggests that the environment for growing up   5
may have an important role in the formation of risk attitudes. Our finding implies that in the 
migrant population inter-generational transmission of risk preferences is relatively weak. A 
relative weak link between foreign parents and their children has also been observed regarding 
other behavior like educational choices (Gang and Zimmermann, 2000). 
  For a robustness check, we repeat our analysis on separate samples of males and females. 
Table 2 concentrates on the estimated parameters involving foreign nationality. The attitudes 
towards risk 'in general' deliver basically identical findings for both male and females: foreign 
nationals are significantly more risk averse (by about 0.6 points on the 11-point preference scale) 
when born abroad, and not different from natives when born in the host country. Some gender 
differences appear when considering the willingness to take specific risks. Whereas migrant 
women are markedly different and more risk averse than their native western counterparts, 
migrant men are not. First-generation women are especially risk averse in matters of driving, 
career, sports and leisure, and trusting strangers. This observation is likely to be correlated to 
their underexposure to these domains of life. The significantly lesser willingness of born abroad 
females to take risks in these domains enhances the native-migrant gap in risk attitudes estimated 
on the full sample. A peculiar gender pattern drives the insignificant overall first-generation 
effect delivered by the willingness to take health risks: for non-obvious reasons female foreign 
nationals born abroad are strongly more risk averse than German females, whereas the reverse is 
true for foreign born men in comparison to native men. 
 
4. Summary 
  This paper provides the first direct evidence on risk attitudes differences between western 
natives and foreign nationals using an innovative new set of questions from the 2004 wave of the 
German Socio-economic Panel. Individuals' willingness to take risks is captured by an 11-point 
scale on a general risk perception as well as on specific contexts as driving, financial portfolio,   6
sports and leisure, career, health, and trusting strangers. The perceived wisdom is that migrants 
exhibit stronger attitudes towards risks than the native population.  
  This claim has to be reconsidered. Foreign nationals who have actually immigrated into 
the country are in general more risk averse than natives, and their descendants are no different 
than natives. We find, overall, a strong intergenerational adjustment of risk attitudes. Risk 
attitudes of foreign national males differ only in details from those of females. Various 
selectivity issues and general ethnic differences in risk attitudes may explain these findings.     7
References 
Borjas, G. J., 1987, Self-selection and the earnings of immigrants, American Economic Review 
 77,  531-553. 
Chiswick, B., 1978, The effect of Americanization on the earnings of foreign-born men, Journal 
  of Political Economy 86, 897-921. 
Constant, A. and K. F. Zimmermann, 2006, The making of entrepreneurs in Germany: Are 
  native men and immigrants alike?, Small Business Economics 26, 281-302.  
DeLeire and H. Levy, 2004, Worker Sorting and the Risk of Death on the Job, Journal of Labor 
Economics 19, 837-878. 
Dohmen, T., A. Falk, D. Huffman, U. Sunde, J. Schupp and G. G. Wagner, 2005, Individual risk 
  attitudes: New evidence from a large, representative, experimentally-validated survey. 
  Discussion Paper No. 1730, Institute for the Study of Labor, IZA, Bonn. 
Frederick, S., 2005, Cognitive reflection and decision making, Journal of Economic Perspectives 
 19,  25-42. 
Gang, I. and K. F. Zimmermann, 2000, Is child like parent? Educational attainment and ethnic 
origin, Journal of Human Resources 35, 550-569. 
Hartog, J., A. Ferrer-i-Carbonell and N. Jonker, 2002, Linking measured risk aversion to 
  individual characteristics, Kyklos 55, 3-25. 
Heitmueller, A., 2005, Unemployment benefits, risk aversion, and migration incentives, Journal 
  of Population Economics 18, 93-112. 
Todaro, M. P., 1980, Internal Migration in Developing Countries: A Survey, in "Population and 
  Economic Change in Developing Countries", ed. R. A. Easterlin, University of Chicago 
  Press, London and Chicago, 361-402. 
Zimmermann, K. F., 1995, Tackling the European migration problem, Journal of Economic 
  Perspectives 9, 45-62.   8
 
Table 1. Dependent Variable: Risk Attitudes - Full Sample 
  General Driving 
Financial 
Portfolio 
Sports and 
Leisure Career  Health 
Trusting 
Strangers
         
Constant  2.845*** -0.374  -0.854 3.109*** -0.985 2.124***  3.408*** 
  (0.551) (0.599) (0.524) (0.579) (0.637) (0.587) (0.578) 
         
Years  of  education  0.086*** 0.038*** 0.106*** 0.121*** 0.138*** 0.049*** 0.155*** 
  (0.007) (0.007) (0.006) (0.007) (0.008) (0.007) (0.007) 
         
Household  net  income  0.814*** 0.997*** 0.926*** 0.722*** 0.894*** 0.481*** 0.679*** 
  (0.078) (0.083) (0.074) (0.082) (0.089) (0.084) (0.082) 
         
Female -0.660***  -0.989***  -0.718***  -0.638*** -0.592*** -0.585*** -0.222*** 
  (0.044) (0.047) (0.042) (0.046) (0.051) (0.047) (0.046) 
         
Married -0.237***  -0.127***  -0.079**  -0.264*** -0.329*** -0.256*** -0.301*** 
  (0.040) (0.043) (0.038) (0.042) (0.047) (0.042) (0.042) 
         
Children  <16 years old  -0.058  -0.116**  -0.138*** -0.212*** -0.124*** -0.099**  -0.031 
   present in household  (0.043)  (0.045)  (0.040)  (0.045)  (0.048)  (0.045)  (0.045) 
         
Body height in   0.017***  0.017***  0.010***  0.016***  0.017***  0.008***  -0.00008 
   centimeters  (0.002)  (0.003)  (0.002) (0.003) (0.003) (0.003) (0.003) 
         
Age -0.095***  0.100***  0.067***  -0.122***  0.106***  -0.010  -0.091*** 
  (0.022) (0.024) (0.021) (0.023) (0.026) (0.023) (0.023) 
         
Age
2/100  0.173*** -0.256*** -0.148*** 0.153*** -0.274*** -0.0003  0.164*** 
  (0.045) (0.050) (0.043) (0.048) (0.053) (0.048) (0.047) 
         
Age
3/10,000  -0.134*** 0.139*** 0.073*** -0.104*** 0.144***  -0.023  -0.107*** 
  (0.029) (0.032) (0.027) (0.031) (0.034) (0.031) (0.030) 
         
Living in eastern Germany  0.280***  0.081** -0.042 0.074*  0.358***  0.167***  -0.222*** 
  (0.038) (0.041) (0.036) (0.040) (0.044) (0.041) (0.040) 
         
Foreign  nationality  0.059 -0.202 0.221 -0.196 -0.180 -0.176 0.086 
  (0.144) (0.154) (0.137) (0.151) (0.163) (0.154) (0.151) 
         
Foreign nationality   -0.649***  -0.214  -0.433*** -0.402**  -0.333*  -0.033  -0.170 
*  born  abroad  (0.157) (0.169) (0.149) (0.165) (0.178) (0.168) (0.165) 
         
R-squared 0.14  0.17  0.12 0.21 0.19 0.08 0.07 
         
Observations  18,993 18,004 18,899 18,744 17,339 18,996 19,012 
Standard errors in parentheses.  * significant at 10%, ** significant at 5%, *** significant at 1% (two-tail test) 
   9
 
Table 2. Dependent Variable: Risk Attitudes - Estimates by Gender 
  Male 
  General Driving 
Financial 
Portfolio 
Sports and 
Leisure  Career Health 
Trusting 
Strangers 
Foreign  nationality  0.152 -0.331 0.206 -0.260 -0.337  -0.720***  -0.144 
  (0.203) (0.224) (0.208) (0.220) (0.234) (0.222) (0.212) 
         
Foreign  nationality  -0.676***  0.017 -0.421* -0.318 -0.226 0.443* 0.179 
* born abroad  (0.222)  (0.245)  (0.227)  (0.241)  (0.257)  (0.242)  (0.232) 
         
R-squared  0.10 0.12 0.10 0.18 0.14 0.07 0.06 
         
Observations 9,134  8,885  9,104 9,035 8,469 9,130 9,139 
         
  Female 
  General Driving 
Financial 
Portfolio 
Sports and 
Leisure Career  Health 
Trusting 
Strangers 
Foreign  nationality  -0.042 -0.050 0.220 -0.140 0.002 0.387* 0.304 
  (0.204) (0.211) (0.178) (0.207) (0.227) (0.215) (0.216) 
         
Foreign nationality  -0.614***  -0.486**  -0.425** -0.475** -0.481* -0.531** -0.508** 
* born abroad  (0.222)  (0.231)  (0.194)  (0.225)  (0.247)  (0.234)  (0.235) 
         
R-squared  0.12 0.13 0.07 0.19 0.19 0.06 0.06 
         
Observations 9,859  9,119  9,795 9,709 8,870 9,866 9,873 
Standard errors in parentheses.  * significant at 10%, ** significant at 5%, *** significant at 1% (two-tail test) 
OLS Regressions include additional controls for age, years of education, marital studies, presence of children less 
than 16 years old in the household, the total net household income in 10,000s Euros and body height.    
 
 

1730, Institute for the Study of Labor,

Cognitive reflection and decision making,

Individual risk attitudes: New evidence from a large, representative, experimentally-validated survey.

Internal Migration in Developing Countries: A Survey, in &quot;Population and Economic Change in Developing Countries&quot;,

Native-Migrant Differences in Risk Attitudes

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