Pure rank preferences and variation in risk-taking behavior

Oded Stark, Wiktor Budzinski and Marcin Jakubek

No 296754, Discussion Papers from University of Bonn, Center for Development Research (ZEF)

Abstract: 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.

Keywords: Financial Economics; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 10
Date: 2019-11-21
New Economics Papers: this item is included in nep-evo, nep-exp and nep-upt
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Pure rank preferences and variation in risk-taking behavior (2019)
Working Paper: Pure Rank Preferences and Variation in Risk-Taking Behavior (2019)
Working Paper: Pure rank preferences and variation in risk-taking behavior (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ubzefd:296754

DOI: 10.22004/ag.econ.296754

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