Parenting is risky business: parental risk attitudes in small stakes decisions on behalf of their children

Abstract

Parents often face risk when making decisions on behalf of their children, since outcomes may affect child development. We perform an incentive-compatible field experiment using the Holt and Laury (Am Econ Rev 92(5):1644-1655, 2002) design to elicit parental risk preferences in a stewardship decision framework. Multivariate analysis using different estimation techniques suggests that parents are significantly more risk-averse when deciding for their child than for themselves. Higher risk aversion is linked to characteristics of parents, not of children. Mood and gender of the deciding parent play a key role. If these results also hold for larger stakes, insights from this study could help to improve decision environments for parents to limit inequality between children due to diverging parental risk preferences.