This paper develops a model of risky investment in education under disappointment aversion, modelled as loss aversion … around one's endogenous expectation. The model shows that disappointment aversion reduces the optimal investment in education … generated by the riskiness of education. Policies aimed at influencing students' expectations can reduce early dropout. …

This paper develops a model of risky investment in education under disappointment aversion, modelled as loss aversion … around one's endogenous expectation. The model shows that disappointment aversion reduces the optimal investment in education … generated by the riskiness of education. Policies aimed at influencing students' expectations can reduce early dropout. …

This paper considers how optimal education and tax policy depends on the risk properties of human capital. It is … positive or a negative education premium. In the same model a positive intertemporal wedge is optimal. Aset of generalizations …, including non-observability of education, non-observability of consumption, and temporal resolution of uncertainty, are then …

Justification for policies to encourage investments in education, particularly for individuals at the lower end of the … potentially loss averse around their expected outcome make risky investments in education and we draw on optimal tax theory to … preferences, standard risk aversion and labour supply behaviour, (ii) the risk properties of education, and (iii) the degree of …