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Perceived Relative Wealth and Risk Taking

Dietmar Fehr and Yannick Reichlin

No 9253, CESifo Working Paper Series from CESifo

Abstract: We show that perceptions of relative rank in the wealth distribution shape individuals’ willingness to take risks. Using a representative large-scale survey, we manipulate perceptions of relative standing by randomly varying response categories when asking respondents about their wealth level. Respondents who are induced to perceive their relative position as low display more tolerance towards risk in a subsequent incentivized lottery task. This effect is mainly driven by individuals who more firmly believe that life outcomes are beyond their control. This interaction between risk preferences and underlying beliefs spotlights the benefits of incorporating personality traits into economic analysis.

Keywords: relative wealth; risk taking; survey; experiment; locus of control (search for similar items in EconPapers)
JEL-codes: D31 D63 D81 D91 E21 I31 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-isf, nep-mac, nep-ore and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9253

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