Pure Rank Preferences and Variation in Risk-Taking Behavior

Oded Stark, Wiktor Budzinski and Marcin Jakubek

No 12637, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: relative risk aversion; rank-based utility; variation in risk-taking behavior; rank in the wealth distribution (search for similar items in EconPapers)
JEL-codes: D01 D31 D81 G32 G41 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2019-09
New Economics Papers: this item is included in nep-exp, nep-ore, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published - published in: Economics Letters, 2019, 184, 108636

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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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