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Does nurture matter: Theory and experimental investigation on the effect of working environment on risk and time preferences

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Abstract

Building upon the reference dependent preferences model, we develop a theoretical framework to examine the relationship between environment and preferences. To verify the model’s prediction, we use a combined artefactual field experiment and household survey data in Vietnam to investigate whether involvement is risky and has long-run targeted benefits, thereby causing fishermen to exhibit different risk and time preferences than workers in other occupations. Using a structural model approach, we integrate prospect theory and hyperbolic time discounting into a single framework, to simultaneously estimate and correlate the parameters of both risk and time preferences with other demographic variables. The key finding that fishermen are found to be less risk-averse and more patient than others asserts the theoretical prediction about the influence of the working environment on preferences.

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Notes

  1. All proofs are available from the author upon request.

  2. We relax the assumption in Proposition 1 by allowing the expected value of the risky choice to take any value.

  3. The proof of proposition 4 is available from the author upon request.

  4. For simplicity, hereafter we use the term field experiment to refer to artefactual field experiment. Basically, artefactual field experiments are laboratory experiments conducted with individuals in the field rather than with students in universities. Readers interested in more detailed discussion on the taxonomy of field experiments may refer to Harrison and List (2004).

  5. The average experimental earning for three games was 174,141 dong (about 11 dollars), roughly 6 to 9 days’ wages for casual unskilled labor (Tanaka et al. 2010).

  6. Several households had moved during the period 2002–2005. As such, we finally had 184 participants in the experiments. Among these 184 participants, 3 participants didn’t show up at the experiment or decided not to participate; however, we use information on their household income level to calculate the village’s mean income and some other summary statistics.

  7. In addition to risk and time preferences, we also conducted a trust experiment with the same participants.

  8. We apply the cluster option in Stata which takes into account arbitrary intra-group correlation.

  9. The detailed result is available upon request.

  10. We apply the same procedure used in Train (2003) and Andersen et al. (2008) to draw random sequences in order to ensure good coverage of the intended density with minimal R. This makes it feasible to undertake the simulated maximum likelihood for small-dimensional data set (181 individuals with 18 observation per individual).

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Acknowledgements

I would like to thank Tomomi Tanaka and Colin Camerer for great support and suggestions. The Editor Kip Viscusi and an anonymous referee have provided great comments to improve the manuscript. I am grateful for a Behavioral Economics Small Grant from the Russell Sage Foundation, a grant from Advanced Studies on International Development, and internal Caltech funds to Prof. Colin Camerer. Thanks to our research coordinators, Phan Dinh Khoi, Huynh Truong Huy, Nguyen Anh Quan, Nguyen Mau Dung, and research assistants, Bui Thanh Sang, Nguyen The Du, Ngo Nguyen Thanh Tam, Pham Thanh Xuan, Nguyen Minh Duc, Tran Quang Trung, and Tran Tat Nhat. We also thank Nguyen, the Quan of the General Statistical Office, for allowing us to access the 2002 household survey data.

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  1. Economics Department, Nanyang Technological University, 14 Nanyang Drive, 637332, Singapore

    Quang Nguyen

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  1. Quang Nguyen
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Correspondence to Quang Nguyen.

Appendices

Appendix 1

Table 9 Variable definitions
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Appendix 2

Table 10 Expected payoff difference of pairwise lottery choices
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Nguyen, Q. Does nurture matter: Theory and experimental investigation on the effect of working environment on risk and time preferences. J Risk Uncertain 43, 245–270 (2011). https://doi.org/10.1007/s11166-011-9130-4

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