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Pure rank preferences and variation in risk-taking behavior

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  • Stark, Oded
  • Budzinski, Wiktor
  • Jakubek, Marcin

Abstract

Assuming that an individual's rank in the wealth distribution is the only factor determining the individual's wellbeing, we analyze the individual's risk preferences in relation to gaining or losing rank, rather than the individual's risk preferences towards gaining or losing absolute wealth. We show that in this characterization of preferences, a high-ranked individual is more willing than a low-ranked individual to take risks that can provide him with a rise in rank: relative risk aversion with respect to rank in the wealth distribution is a decreasing function of rank. This result is robust to incorporating (the level of) absolute wealth in the individual's utility function.

Suggested Citation

  • Stark, Oded & Budzinski, Wiktor & Jakubek, Marcin, "undated". "Pure rank preferences and variation in risk-taking behavior," Discussion Papers 296754, University of Bonn, Center for Development Research (ZEF).
    • Handle: RePEc:ags:ubzefd:296754
    DOI: 10.22004/ag.econ.296754
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    Cited by:

    1. Oded Stark, 2020. "Relative deprivation as a cause of risky behaviors," The Journal of Mathematical Sociology, Taylor & Francis Journals, vol. 44(3), pages 138-146, July.
    2. Oded Stark & Lukasz Balbus, 2025. "Altruistic giving and risk taking in human affairs," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 64(3), pages 373-392, May.
    3. Stark, Oded & Jakubek, Marcin, 2020. "A methodological rejoinder to "Does income relate to health due to psychosocial or material factors?"," Social Science & Medicine, Elsevier, vol. 259(C).
    4. Stark, Oded & Budzinski, Wiktor & Jakubek, Marcin, 2022. "Risk aversion when preferences are altruistic," Economics Letters, Elsevier, vol. 216(C).
    5. Pak, Tae-Young, 2023. "Relative deprivation and financial risk taking✰," Finance Research Letters, Elsevier, vol. 55(PA).

    More about this item

    Keywords

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    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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