Study shows: Success is a family affair

November 28, 2006

Whether you go through life as a daredevil or tend to avoid taking risks depends a lot on your own pedigree. This is shown by a current study by the Institute for the Study of Labor (Institut zur Zukunft der Arbeit, IZA) and the University of Bonn. According to this study, parents who are willing to take risks tend on average to have children who are more prepared to take risks. Moreover, the willingness to trust one's fellow humans is apparently also inherited. The results offer a new basis for explaining why children who have successful parents often go far in life as well. Every economic decision involves risks; every business is in part a matter of trust. Inherited character traits could therefore be a decisive factor for economic success, the researchers speculate.

The scientists used data from the so called "socio-economic" panel from 2003 and 2004. For this data 3,600 parents were interviewed together with their children. On average the children were 25 years old; more than 40 per cent were no longer living with their parents.

Every member of the family was supposed to estimate their willingness to take risks on a scale of 0 (= not willing at all to take risks) to 10 (= very willing to take risks). Candidates were also supposed to differentiate between the following categories: driving a car, financial matters, sport, leisure, career and health. "With regard to willingness to take risks children are astonishingly similar to their parents," is how the Bonn economist Professor Armin Falk sums up the results. "This is not only true for the overall estimate, but also for the different categories. There are people, for example, for whom no mogul piste is too steep when skiing, but who invest their money in secure government bonds. An identical risk profile can often be found with their children."

The apple never falls far from the tree

Things are similar with the willingless to trust one's fellow human beings. In this case the apple never falls far from the tree. "Of course our results are based on a survey," says Professor Falk, who carried out the study together with his colleages from the IZA, Dr. Thomas Dohmen, Dr. David Hufman and Dr. Uwe Sunde, relativising the study. Professor Falk himself is the director of research at the IZA and is head of the laboratory for experimental economic research at Bonn University." However, our experiments over the last few years have shown that self-assessment is very consistent with actual character traits."

The researchers proved another saying to be a myth. According to the survey data, opposites do not attract - instead women who like taking risks are most likely to have husbands of the same ilk. As for "trusting others", married couples also tend to have identical attitudes, even if they got married only recently. "When choosing partners, we seem to try to ensure that the person we have chosen is as similar as possible to us," is Professor Falk's interpretation of the results.

Parents shape the character of their offspring, who in turn prefer to choose a partner similar to themselves. These two effects could contribute to attitudes such as willingness to take risks and confidence in others being "inherited" across several generations. At the same time these character traits are decisive, among other factors, for economic success. "Every economic decision is risky, whether it is about buying shares, building a house or just starting to study at university," Armin Falk emphasises. "On the other hand success in business also involves the right amount of trust."

Once lower class, always lower class"

This may offer an additional basis for explaining why clans like the Kennedys or the Krupp family have been successful for many generations. "If children are similar to their parents in their willingness to take risks and trust others, they will often make similar decisions in economic situations, too," Professor Falk says. "Of course people who come from a rich family simply have better chances in life." Conversely this "hereditary effect" could also reinforce a person's lower class status.

The Zurich economist Professor Ernst Fehr recently compared the willingness to take risks among Americans and Germans, using the same set of questions. The inter-viewees on the other side of the pond scored an average of 5.6, whereas Germans, who scored 4.4, are noticeably more cautious. "The USA is traditionally a country of immigration," Armin Falk says. "Probably it is particularly people who are prone to take risks that tend to emigrate, at least there is research pointing in this direction. Our results add to this, showing that the willingness to take risks is somehow "inherited". This may explain the difference."
-end-
The original article can be found on the internet at: http://ftp.iza.org/dp2380.pdf

University of Bonn

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