Inequality and risk preference

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Abstract

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 data set 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 of a steeper gradient between willingness to take risks and inequality for cognitively more able individuals who likely have a better assessment of inequality and for those who are dissatisfied with their income. We present results in favour of our mechanism, which suggests that falling behind one’s reference group increases the appetite for risk taking.

Metadata

Item Type:	Article
Authors/Creators:	Pickard, H. Dohmen, T. Van Landeghem, B. https://orcid.org/0000-0001-6759-8893
Copyright, Publisher and Additional Information:	© 2024 The Author(s). Open Access: This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
Keywords:	Income inequality; risk preference; risk sensitivity
Dates:	Published: October 2024 Published (online): 17 October 2024 Accepted: 19 August 2024
Institution:	The University of Sheffield
Academic Units:	The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield)
Depositing User:	Symplectic Sheffield
Date Deposited:	18 Sep 2024 13:15
Last Modified:	04 Nov 2024 11:26
Status:	Published
Publisher:	Springer
Refereed:	Yes
Identification Number:	10.1007/s11166-024-09440-8
Open Archives Initiative ID (OAI ID):	oai:eprints.whiterose.ac.uk:217374

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Inequality and risk preference. (deposited 04 Sep 2024 09:09)
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