The Role of Risk and Ambiguity Preferences on Early-Childhood Investment: Evidence from Rural India

Understanding the role of preferences, beliefs, and constraints on social and wealth inequities is a key unlock for economic growth. This study focuses on the inter-relationship between risk and ambiguity preferences of mothers, their early childhood investments, and their children’s outcomes. To do so, we elicit ambiguity attitude and risk aversion preference parameters from more than 6000 randomly sampled mothers from nearly 500 villages in Rajasthan, India. Across several measures of mothers’ investment in nutrition of their children between the ages of 0-6, we find a robust and stable positive correlation of estimated ambiguity attitude and risk aversion parameters with maternal investments: the more risk and ambiguity averse the mother, the greater her investments. Such investments are correlated with better children’s cognitive and non-cognitive skills, as mothers with greater risk and ambiguity aversion have children with superior skills, even after accounting for socio-economic differences. Importantly, the positive effect of ambiguity and risk aversion on early-life outcomes can attenuate the negative impact of proxies of socio-economic disadvantage, such as illiteracy of the mothers, belonging to historically discriminated social groups, no exposure to radio, television, or zero access to mobile phones for all measures of cognitive and non-cognitive early-life skills.