Academic journal article Journal for Educational Research Online

Educational Choice and Risk Preferences: How Important Is Relative vs. Individual Risk Preference?

Academic journal article Journal for Educational Research Online

Educational Choice and Risk Preferences: How Important Is Relative vs. Individual Risk Preference?

Article excerpt

1. Introduction

We focus on the role of risk preferences in educational choice, as previous sociological research on risk aversion has made the misleading assumption that people of different classes are universally risk-averse, and neglected important theoretical arguments and findings in other disciplines. The investigation and theoretical explanation of risk preferences was pioneered by psychologists Kahneman and Tversky (1979; Tversky & Kahneman, 1992), who developed the now empirically well-established prospect theory. This theory is used widely today in economics, where risk comes into play as an individual preference that influences decisions in various areas of life (Borghans, Duckworth, Heckman, & ter Weel, 2008). The economic literature supports the idea that risk-averse behavior leads to lower educational investments, whereas risk-seeking behavior leads to higher educational investments (Brown, Ortiz-Nuñez, & Taylor, 2012; Weiss, 1972).

The sociological model of educational choice by Breen and Goldthorpe (1997) also incorporates risk aversion, which at first suggests an affinity with prospect theory. Although it was developed primarily to explain the persistence of social inequality and the reduction in gender differences in educational attainment in industrialized countries over time, this model has also been used to explain social inequalities at a given point in time (Gabay-Egozi, Shavit, & Yaish, 2010; Stocké, 2007). In the Breen and Goldthorpe model, which followed on the work of Boudon (1974), the authors distinguished between primary and secondary effects of social origin and identified the motive of status maintenance as the main factor accounting for secondary effects. They argue that in striving to avoid downward status mobility, families show a tendency toward risk aversion in educational choices. Our application of prospect theory to educational decisions results in a more socio-economically differentiated view, revealing that risk-averse behavior is more prevalent among lower socio-economic classes, whereas risk-seeking behavior is more prevalent among higher socio-economic classes.

Making reference to prospect theory (Kahneman & Tversky, 1979) and models of educational choice (Breen & Goldthorpe, 1997; Goldthorpe, 1996), we explore differences in relative and individual risk preferences and the socio-economic background conditions under which individual risk preference might affect students' intentions to pursue university or other forms of vocational or higher education after completion of secondary school. We argue that the motive of status maintenance is the major force driving educational decision-making, leading to relative risk-seeking in higher classes and relative risk aversion in lower classes. Individual risk aversion comes into play particularly for students from lower socio-economic backgrounds, since these students normally tend to maintain their status at an earlier stage in the educational career than higher-class students and thus to avoid risky decisions. Thus, the assumption that people from all social classes are universally risk-averse is misleading, because risk aversion is not a key factor in decision making for upper social classes.

In our study, we tested theoretically derived hypotheses based on empirical data from the German Socio-Economic Panel Study (SOEP). We analyzed the educational intentions of students who were about to graduate from upper secondary school (Gymnasium), the university-oriented track of the German school system, and to thereby obtain their general university entrance qualification (Abitur). School-leavers with an Abitur show disparities in their intentions as well as in their subsequent educational participation: After graduating from Gymnasium, students from lower social classes enroll less often in university, as firm-based apprenticeships are widely accepted in these social groups as an alternative to a university degree (Allmendinger, 1989; Müller & Shavit, 1998). …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.