Time Discounting, Relative Risk Aversion, and Educational Inequalities

Using recently collected survey data merged with register data from the Netherlands, this study examines the predictive value of personal concerns with avoiding downward mobility and time discounting preferences for later school careers. Following implications of relative risk aversion theory and time discounting theory, the results show that children from low-income households need to have both a concern to avoid downward mobility and a higher willingness to wait for longer-term returns in order to make it to the higher tracks. Starting from the premise that, given earlier performance, it would be rational to go on to the highest possible track to avoid downward mobility, the Dutch early-tracking system assumes that students oversee a long educational future to optimize their educational investment. This assumption is less valid for low-income students, which could explain why early tracking increases socioeconomic inequalities in school careers.