Perceived Relative Wealth and Risk Taking

56 Pages Posted: 19 Aug 2021

See all articles by Dietmar Fehr

Dietmar Fehr

Heidelberg University - Alfred Weber Institute for Economics

Yannick Reichlin

European University Institute

Date Written: 2021

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.

JEL Classification: D310, D630, D810, D910, E210, I310

Suggested Citation

Fehr, Dietmar and Reichlin, Yannick, Perceived Relative Wealth and Risk Taking (2021). CESifo Working Paper No. 9253, Available at SSRN: https://ssrn.com/abstract=3907737 or http://dx.doi.org/10.2139/ssrn.3907737

Dietmar Fehr (Contact Author)

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Yannick Reichlin

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

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