Risk Aversion in Rural India

How does one measure financial risk aversion for a rural individual that has no knowledge of financial products? What household variables influence financial risk aversion? To answer this question, this study implemented Biswanger’s Lottery with an added gains and losses competent, in a series of six games, on a sample of 45 individuals drawn from two villages in rural India. For each participant, information on net wealth, net income, occupation and gender was recorded. The overall distribution of risk class was primarily intermediate risk aversion, followed by severe and moderate risk aversion. While the effect of gender was significant, its relationship with risk aversion was nonlinear. Similarly, the paradoxical behavior of the landless laborer was highlighted and discussed.