On Social Preferences and the Intensity of Risk Aversion

32 Pages Posted: 25 Jun 2019

See all articles by Oded Stark

Oded Stark

University of Bonn; University of Warsaw; University of Tuebingen; Georgetown University

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Abstract

We study the relative risk aversion of an individual with particular social preferences: his wellbeing is influenced by his relative wealth, and by how concerned he is about having low relative wealth. Holding constant the individual's absolute wealth, we obtain two results. First, if the individual's level of concern about low relative wealth does not change, the individual becomes more risk averse when he rises in the wealth hierarchy. Second, if the individual's level of concern about low relative wealth intensifies when he rises in the wealth hierarchy and if, in precise sense, this intensification is strong enough, then the individual becomes less risk averse: the individual's desire to advance further in the wealth hierarchy is more important to him than possibly missing out on a better rank.

Keywords: relative risk aversion, wealth rank, concern about low relative wealth

JEL Classification: D31, D81, G11

Suggested Citation

Stark, Oded, On Social Preferences and the Intensity of Risk Aversion. IZA Discussion Paper No. 12423. Available at SSRN: https://ssrn.com/abstract=3408321

Oded Stark (Contact Author)

University of Bonn ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

University of Warsaw ( email )

Dluga Street 44/50
Warsaw, 00-241
Poland

University of Tuebingen

Wilhelmstr. 19
Tuebingen, Baden Wuerttemberg 72074
Germany

Georgetown University ( email )

Washington, DC 20057
United States

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