One tricky aspect of the analysis is that factors such as wealth and education may be
affected by risk aversion, especially for nonstudent subjects. Binswanger’s (1981) classic
paper deals with these issues by estimating a three-equation model in which risk aver-
sion, schooling, and wealth are endogenous. The model also includes a measure of inher-
ited wealth (market value of inherited land).
33
The only variable that was significant in
the risk aversion equation was a “luck” variable, defined on the basis of how often the
high payoff outcome had been obtained in prior decisions (recall that Binswanger visited ...
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