Charles Noussair, Stefan Trautmann, Gijs van de Kuilen, and Nathanael Vellekoop Tilburg University Risk and Choice: Conference in honor of Louis Eeckhoudt Toulouse, 2012

 We report direct evidence of a relationship between religiosity and risk aversion  Confine our attention to Protestants and Catholics  We use an incentivized experimental measure of risk aversion.  Participants are drawn from a demographically representative sample of the Dutch population.  We have data about own and parents’ church attendance, frequency of prayer, denomination, and own specific religious beliefs, at the individual level.  Using our direct measure of risk aversion, we ◦ Study the relationship between risk aversion and religiosity ◦ Test for differences between Protestants and Catholics. ◦ Consider whether risk aversion correlates with beliefs and/or social aspects of religious practice.

 Weber (1905) postulated an association between Protestantism and economic development in the West.  Empirical work suggests a relationship between religion and economic performance (Barro and McCleary, 2003, 2006; Guiso et al., 2003, 2006). ◦ Barro and McCleary find that growth is positively associated with religious beliefs but negatively associated with church attendence. ◦ Guiso et al., find that religious beliefs are associated with attitudes conducive to economic growth (cooperation, thriftiness, value of work, etc...)  One mechanism whereby the effect of religion on the economy could operate is via a correlation with risk attitudes.

 A number of studies have found a positive correlation between religiosity and risk aversion (Miller and Hoffmann, 1995; Liu, 2010; Dohmen et al., 2011, Hillary and Hui, 2009).  There is a negative correlation between religiosity and gambling (Hoffmann, 2000; Diaz, 2000; Ellison and McFarland, 2011).  The evidence on Catholic and Protestant differences is mixed: ◦ Kumar et al. (2011), Barsky et al. (1997) and Benjamin et al. (2010) find that Protestants are more risk averse or make safer financial investments than Catholics. ◦ Renneboog and Spaenjers, (2011) and Dohmen et al. (2011) observe the opposite.

 Characterized by religious diversity, ◦ Just over half of the population (51.6%) report an affiliation to an established religion. ◦ 27% are members of the Catholic Church, while 16.6% are members of a Protestant denomination. ◦ The southern and southeastern regions of the country, have a strong Catholic majority; the southwest and northeast have a clear Protestant majority.  Religious identity has historically been important, due, among other factors, to ◦ the regional division, ◦ the role of Protestantism in the original war for independence against Spain in the 16th and 17th centuries, and ◦ the fact that the Netherlands has at times served as a refuge for Protestants from other countries.  There are Muslim and Hindu minorities comprising roughly 6% and 1.3% of the population respectively.  Eastern Orthodox and Jewish communities each comprise.2% of population

 We use data from the LISS panel, managed by CentERdata, an organization affiliated with Tilburg University.  The LISS panel consists of approximately 9000 demographically representative individuals, who complete a questionnaire over the internet each month.  Respondents are reimbursed for the costs of completing the questionnaires four times a year.  Additionally, incentivized economic experiments are conducted routinely on the LISS panel.  2631 participated in this particular study

Summary Statistics mean/% Catholics Protestants Member of religious group 42.5% Parents members 66.1% 94.8% 93.8% Roman Catholic 21.8% Protestant 16.4% Attendance >1 per week 3.9% 1.1% 13.7% Attendance =1 per week 6.9% 6.4% 27.2% Attendance =1 per month 7.1% 14.8% 17.7% Attendance >1 per week (age 15) 10.9% 13.4% 23.8% Attendance =1 per week (age 15) 31.7% 55.7% 45.2% Attendance =1 per month (age 15) 6.9% 6.8% 8.3% Pray >1 per week 25.7% 36.0% 68.0% Pray =1 per week 3.7% 7.2% 5.2% Pray =1 per month 5.1% 10.5% 4.2% Degree belief in God (min 1, max 6) Belief indicators (min 0, max 7) Female 52.2% 53.9% 56.3% Age Observations: Church membership declining. Protestants attend church more, pray more, and are stronger believers than Catholics

 Consider lottery L, which yields: ◦ 65 Euro with prob..5 ◦ 5 Euro with prob..5  Subjects made pairwise choices between lottery L and: ◦ 20 Euro ◦ 25 Euro ◦ … ◦ 40 Euro  Counterbalanced with respect to order and position  The number of safe choices is interpreted as a measure of risk aversion ◦ 1.5 safe choices corresponds to risk neutrality  2631 observations, 1047 had real payments, the rest had hypothetical payments

 Two measures of strength of religious beliefs: ◦ Seven yes/no questions:  Do you believe in (i) life after death, (ii) the Bible as the word of God, the existence of (iii) heaven,, (iv) hell, (v) the devil, (vi) Adam and Eve, and (vii) that it makes sense to pray. ◦ Self-identify on scale from 1 – 7:  Scale goes from “I do not believe in God = 1” to “I believe without any doubt in God = 7.”  Practice: ◦ Frequency of church attendance ◦ Frequency of prayer outside of church

Church members are more risk averse than non- members There is no difference in risk aversion depending on whether one’s parents were church members of not. :Parental and Own Church Membership Parents in church Subject in church # obs. Avg. safe choices (0-5) Yes Yes No No Yes No

Greater current church attendance is associated with greater risk aversion

Controls A: gender, age, treatment, and counterbalancing in the presentation. Controls B: marital status, number of children, income, homeownership and health status, educational and occupational status, and whether one has a Dutch passport.

Controls A: gender, age, treatment, and counterbalancing in the presentation. Controls B: marital status, number of children, income, homeownership and health status, educational and occupational status, and whether one has a Dutch passport.

Strength of religious beliefs has no significant relation with risk aversion We have seen earlier that church attendance predicts risk aversion This suggests that it is the social aspect of church membership that is related to risk aversion

 In our sample, risk aversion is positively associated with religiosity  Given current religiosity, parents’ level in one’s childhood has no effect.  Protestants are more risk averse than Catholics  The correlation appears to be related to the belonging rather than the believing aspects of religious practice.