Individual Risk Preference and Sector Choice: Are Risk-Averse Individuals More Likely to Choose Careers in the Public Sector?

Abstract

Prior research indicates that public employees are more risk averse than private employees. Little is known, however, about the causes of such differences. This study tries to examine the effects of the “self-select mechanism” and asks the following question: Do workers choose their sectors based on their risk preferences? Using data from the National Longitudinal Survey, this study finds that higher levels of risk aversion are predictive of a greater propensity to pursue careers in the public sector. Findings indicate that an individual’s risk preference is the key to his or her career choices. Managerial implications and suggestions are discussed.