The Rich Complexity of Village Life - In Brief

Averse or inclined?

Individual attitudes toward economic risk vary widely, but inadequate data and methods have prevented economists, until recently, from studying that variation.
A new paper measures risk preference heterogeneity in Thai households using two techniques. The first measures correlation between an individual household’s consumption and its village’s; if insurance is available, consumption in risk-averse households won’t fluctuate as much as their community’s does. These results are verified by examining disparities in households’ asset returns.
Having documented wide-ranging risk preferences, the economists conclude that policies to eliminate community risk are not unambiguously beneficial: Some households gain from fluctuations by insuring the risk-averse.