Relative Risk Aversion and Social Reproduction in Intergenerational Educational Attainment: Application of a Dynamic Discrete Choice Mode

Abstract

The theory of Relative Risk Aversion (RRA) claims that educational decision-making is ultimately motivated by the individual’s desire to avoid downward social class mobility, and that this desire is stronger than the desire to pursue upward mobility. This paper implements a dynamic programming model which tests the central behavioral assumption in the RRA theory stating that (1) individuals are forward-looking when choosing education and (2) that the RRA mechanism comprises an important component in the educational decision-making process. Using data from the Danish Youth Longitudinal Study, we find strong evidence of RRA in educational decision-making over and above the effect of traditional social background variables.