Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/209679
Authors: 
Stark, Oded
Year of Publication: 
2019
Series/Report no.: 
University of Tübingen Working Papers in Economics and Finance 125
Abstract: 
Combining a standard measure of concern about low relative wealth and a standard measure of relative risk aversion leads to a novel explanation of variation in risk-taking behavior identified and documented by social psychologists and economists. We obtain two results: (1) Holding individual i's wealth and his rank in the wealth distribution constant, the individual's relative risk aversion decreases when he becomes more relatively deprived as a result of an increase in the average wealth of the individuals who are wealthier than he is. (2) If relative deprivation enters the individual's utility function approximately linearly then, holding constant individual i's wealth and the average wealth of the individuals who are wealthier than he is, the individual's relative risk aversion decreases when he becomes more relatively deprived as a result of a decline in his rank. Our findings provide a theoretical support for evidence about the propensity of relatively deprived individuals to gamble and resort to other risky behaviors.
Subjects: 
Social preferences
Relative deprivation
Concern about low relative wealth
Risk aversion
JEL: 
D01
D81
D91
I12
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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