Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272481 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 15854
Publisher: 
Institute of Labor Economics (IZA), Bonn
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 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.
Subjects: 
income inequality
risk preference
risk sensitivity
JEL: 
D91
O15
D81
D01
Document Type: 
Working Paper

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