Economic Preferences In Developing Countries: Intergenerational Transmission And The Role Of Cognitive Ability

• Main Authors: Li, Yanjun, Tran, T. Anh Nguyet
• Other Authors: YSI Asia Convening 2019
• Format: Conference or Workshop Item
• Language: English
• Published: H. : ĐHKT 2020
• Subjects: Risk preferences; Intergenerational transmission; Cultural economics; Family economics; Assortative mating; Social interactions
• Online Access: http://repository.vnu.edu.vn/handle/VNU_123/70555
• Institution: Vietnam National University, Hanoi

Recent theories endogenize individual’s economic preferences, postulated that they are transmitted from parents and role models, as well as related to individual’s cognitive ability. This paper constitutes the first attempt to empirically test for the determi- nants of individual’s risk and time preferences through four possible mechanisms in the context of developing countries: (1) direct transmission of preferences from parents to children; (2) positive assortative matching of spouses, which improves the efficiency of the transmission process; (3) the role of local environment on prevailing children’s preferences; (4) children’s cognitive capacity on increasing willingness to take risks in advantageous situations and be more patient over time horizon. Using the longitudi- nal data from the Indonesia Family Life Survey, we find strong, persistent empirical support for all four mechanisms over a test-retest period of seven years. A more thor- ough investigation of the underlying mechanisms further suggests that gender plays a key role in the transmission process, so as various family background factors. We also provide collateral evidence that the measured risk and time preferences are strongly associated with a wide range of individual’s outcomes. Among them, risky choices such as smoking and child marriage, as well as career choices (self-employment) are particularly crucial issues in Indonesia.