Poverty, educational attainment, and loss aversion: An analysis with prospect theory focusing on the loss aversion and forming reference point

The impact of financial assets on the decision to enter university has been studied in terms of the ability to pay tuition fees and invest in post-school education; however, the impact of assets on the decision-making process has not been fully investigated. We constructed a model based on prospect theory, focusing on the heterogeneity of loss aversion by assets and forming a reference point, and examined the relationship between assets and the decision to enter university (more specifically, taking an entrance exam). The results are twofold: 1) students from low-income households are more likely to identify themselves as those who should not enter universities and are likely not to choose to enter universities; 2) a decrease in the cost of preparing for entrance exams relaxes the threshold for taking the entrance exam, while a decrease in tuition does not always relax the threshold.