Inequality and Risk Preference

Arbeitspapier

This paper studies the relationship between income inequality and risk taking. Increased income inequality is likely to enlarge the scope for upward comparisons and, in the presence of reference-dependent preferences, to increase willingness to take risks. Using a globally representative dataset on risk preference in 76 countries, we empirically document that the distribution of income in a country has a positive and significant link with the preference for risk. This relationship is remarkably precise and holds across countries and individuals, as well as alternate measures of inequality. We find evidence that individuals who are more able to understand inequality and individuals who fall behind their inherent point of reference increase their preference for risk. Two complementary instrumental variable approaches support a causal interpretation of our results.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 15854

Classification and Topics

• Classification: Wirtschaft ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Economic Development: Human Resources; Human Development; Income Distribution; Migration ; Criteria for Decision-Making under Risk and Uncertainty ; Microeconomic Behavior: Underlying Principles
• Subject: income inequality ; risk preference ; risk sensitivity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pickard, Harry ; Dohmen, Thomas ; van Landeghem, Bert
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/272481
• Last update: 10.03.2025, 11:46 AM CET