Abstract
This paper develops a model of risky investment in education under disappointment aversion, modeled as loss aversion around one’s endogenous expectation. The model shows that disappointment aversion reduces the optimal investment in education for lower ability people and increases it for higher ability people, thereby magnifying the investment gap between them generated by the riskiness of education. Policies aimed at influencing students’ expectations can reduce early dropout.
Original language | English |
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Pages (from-to) | 1533-1540 |
Number of pages | 8 |
Journal | Economics Bulletin |
Volume | 37 |
Issue number | 3 |
Publication status | Published - 2 Jul 2017 |
Keywords
- Education
- Behaviour
- Disappointment