Measuring Economic Inequality and Risk: A Unifying Approach Based on Personal Gambles, Societal Preferences and References

29 Pages Posted: 2 Aug 2015

See all articles by Francesca Greselin

Francesca Greselin

Università degli Studi di Milano Bicocca - Dept. of Statistics and Quantitative Methods

Ricardas Zitikis

Western University

Date Written: July 10, 2015

Abstract

The underlying idea behind the construction of indices of economic inequality is based on measuring deviations of various portions of low incomes from certain references or benchmarks, that could be point measures like population mean or median, or curves like the hypotenuse of the right triangle where every Lorenz curve falls into. In this paper we argue that by appropriately choosing population-based references, called societal references, and distributions of personal positions, called gambles, which are random, we can meaningfully unify classical and contemporary indices of economic inequality, as well as various measures of risk. To illustrate the herein proposed approach, we put forward and explore a risk measure that takes into account the relativity of large risks with respect to small ones.

Keywords: economic inequality, reference measure, personal gamble, inequality index, risk measure, relativity.

JEL Classification: D81, D63.

Suggested Citation

Greselin, Francesca and Zitikis, Ricardas, Measuring Economic Inequality and Risk: A Unifying Approach Based on Personal Gambles, Societal Preferences and References (July 10, 2015). Available at SSRN: https://ssrn.com/abstract=2638669 or http://dx.doi.org/10.2139/ssrn.2638669

Francesca Greselin

Università degli Studi di Milano Bicocca - Dept. of Statistics and Quantitative Methods ( email )

Piazza dell'Ateneo Nuovo, 1
Milano, Milan 20126
Italy

Ricardas Zitikis (Contact Author)

Western University ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

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