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Measuring economic inequality and risk: a unifying approach based on personal gambles, societal preferences and references

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  • Greselin, Francesca
  • Zitikis, Ricardas

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.

Suggested Citation

  • Greselin, Francesca & Zitikis, Ricardas, 2015. "Measuring economic inequality and risk: a unifying approach based on personal gambles, societal preferences and references," MPRA Paper 65892, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65892
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    More about this item

    Keywords

    economic inequality; reference measure; personal gamble; inequality index; risk measure; relativity.;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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