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Soft Lands Breed Soft Men? The Climatic Roots of Risk Preferences

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Document pages: 104 pages

Abstract: This study examines the historical origins of differences in attitudes towards risk and uncertainty across different cultures. It establishes a robust positive relationship between cross-country temperature volatility and Hofstede’s (2011) [Hofstede, 2011] measure of uncertainty avoidance. This link holds for intermonthly, interseasonal and interannual measures of temperature volatility, and is robust to the inclusion of a wide range of controls. These findings are strengthened by analyses using data from the World Value Survey that show that individuals and countries that have been exposed to volatile climates are generally more supportive of economic protection by the government and prefer secure and stable lifestyles. Moreover, this research obtains similar relationships studying attitudes of second generation migrants from the European Social Survey, thereby isolating the cultural transmission of risk preferences from unobserved country-level heterogeneity and direct geographical effects. Moreover, it establishes that these climatic characteristics seem to have had a culturally embodied impact on meaningful economic behavior and institutions, such as the degree of self-employment and labor market protection, as well as on the differences in income inequality across countries. I argue that these results are consistent with evolutionary theories that emphasize the differential advantage of risk aversion across more or less volatile climates. In particular, I propose two different explanations. Climate volatility may induce more risk averse nomadic foragers to shift into a sedentary lifestyle, leading to a population increase because of lower child-rearing costs. Moreover, the findings are in line with a model in which more risk averse subsistence farmers have an evolutionary advantage in volatile climates because they choose to insure against adverse population shocks. All in all this study suggests that cultural differences in attitudes towards risk and uncertainty have deep climatic roots: geographical differences seem to ultimately translate into rigid institutional and cultural configurations.

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