Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315604 
Year of Publication: 
2024
Citation: 
[Journal:] Journal of Risk and Uncertainty [ISSN:] 1573-0476 [Volume:] 69 [Issue:] 2 [Publisher:] Springer US [Place:] New York, NY [Year:] 2024 [Pages:] 191-217
Publisher: 
Springer US, New York, NY
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.
Subjects: 
Income inequality
Risk preference
Risk sensitivity
JEL: 
D91
O15
D81
D01
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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