A household’s attitude toward risk significantly influences endogenous economic growth, but there have been only a few studies that have focused on this topic. Furthermore, most of the few studies that have studied risk attitudes have focused on those of researchers or entrepreneurs, not households. However, ε in equation (1) is not the DRA of researchers or entrepreneurs; it is the DRA of households. Therefore, it is the DRA of households that is essentially important in endogenous economic growth.
In this paper, I showed that the decreasing rate of marginal utility is kept constant by factors in the process of production, possibly by the productivity of producing new
technologies, and that a household’s quickness of response to new technologies (δ) determines the growth rate. This quickness of response and risk aversion are two sides of the same coin, and quickness of response is heterogeneous across households just as DRA is heterogeneous. Given a constant decreasing rate of marginal utility, if responses to new technologies are on average less quick in a country, firms invest less in new technologies, and as a result, the endogenous economic growth rate of the country will be lower and vice versa. This is the mechanism behind the importance of a household’s attitude toward risk in endogenous economic growth.
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