Pure rank preferences and variation in risk-taking behavior

Arbeitspapier

Assuming that an individual's rank in the wealth distribution is the only factor determining the individual's wellbeing, we analyze the individual's risk preferences in relation to gaining or losing rank, rather than the individual's risk preferences towards gaining or losing absolute wealth. We show that in this characterization of preferences, a high-ranked individual is more willing than a low-ranked individual to take risks that can provide him with a rise in rank: relative risk aversion with respect to rank in the wealth distribution is a decreasing function of rank. This result is robust to incorporating (the level of) absolute wealth in the individual's utility function.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEF Discussion Papers on Development Policy ; No. 283

Classification and Topics

• Classification: Wirtschaft ; Microeconomic Behavior: Underlying Principles ; Personal Income, Wealth, and Their Distributions ; Criteria for Decision-Making under Risk and Uncertainty ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets‡
• Subject: Rank in the wealth distribution ; Rank-based utility ; Variation in risk-taking behavior ; Relative risk aversion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Stark, Oded ; Budzinski, Wiktor ; Jakubek, Marcin
• Event: Veröffentlichung
• (who): University of Bonn, Center for Development Research (ZEF)
• (where): Bonn
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/213459
• Last update: 10.03.2025, 11:44 AM CET