Inequality and Risk-Taking Behaviour
AbstractThis paper investigates social infuences on attitudes to risk and offers an evolutionary explanation of risk-taking by young low-ranked males. Becker, Murphy and Werning (2005) found that individuals about to participate in a status tournament may take fair gambles even though they are risk averse in both wealth and status. Here their model is generalised by use of the insight of Hopkins and Kornienko (2010) that in a tournament or status competition one can consider equality in terms of the status or rewards available as well as in initial endowments. While Becker et al. found that risk-taking is increasing in the equality of initial endowments, it is found here that it is increasing in the inequality of rewards in the tournament. Further, it is shown that the poorest will be risk loving if the lowest level of status awarded is su±ciently low. Thus, the disadvantaged in society rationally engage in risky behavior when social rewards are su±ciently unequal. Finally, as greater inequality in terms of social status induces gambling, it can cause greater inequality of wealth.
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Bibliographic InfoPaper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 204.
Date of creation: 17 May 2011
Date of revision:
risk; status; inequality.;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
- NEP-CBE-2011-06-25 (Cognitive & Behavioural Economics)
- NEP-GTH-2011-06-25 (Game Theory)
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