Relative Wealth Placement and Risk-Taking Behavior

44 Pages Posted: 23 Aug 2019 Last revised: 1 Oct 2020

See all articles by Marc-Andre Hillebrandt

Marc-Andre Hillebrandt

University of Hamburg - Institute for Risk Management and Insurance

Petra Steinorth

University of Hamburg - Institute for Risk Management and Insurance

Date Written: September 24, 2020

Abstract

This study provides evidence that relative wealth placement substantially impacts risk-taking. We derive predictions on risk-taking in a standard portfolio problem in which individuals care about their placement in the wealth distribution relative to peers. In an incentivized laboratory experiment, we compare investment decisions between subjects who receive the same absolute endowment but who differ in relative wealth placement. Consistent with our theoretical predictions, we find that introducing information on other subjects' endowments significantly changes risk-taking; and individuals placed at the bottom (top) of their wealth distribution exhibit more (less) risk-taking--changing invested amounts by up to 50 percent.

Keywords: Decision-making under risk, social comparison, relative standing, risk preferences, last-place aversion

JEL Classification: C91, D63, D81, D91

Suggested Citation

Hillebrandt, Marc-Andre and Steinorth, Petra, Relative Wealth Placement and Risk-Taking Behavior (September 24, 2020). Available at SSRN: https://ssrn.com/abstract=3440690 or http://dx.doi.org/10.2139/ssrn.3440690

Marc-Andre Hillebrandt (Contact Author)

University of Hamburg - Institute for Risk Management and Insurance ( email )

Moorweidenstr. 18
Hamburg, 20148
+49 40 42838 6538 (Phone)

HOME PAGE: http://https://www.bwl.uni-hamburg.de/rmi/personen/hillebrandt.html

Petra Steinorth

University of Hamburg - Institute for Risk Management and Insurance ( email )

Moorweidenstr. 18
Hamburg, 20148

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