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Poverty, Vulnerability, and Reference Dependent Utility


  • Günther, Isabel
  • Maier, Johannes


In this paper we argue that the recent evidence on individuals´ decision making is of high relevance for the measurement of poverty when switching from a static and certain to a dynamic and uncertain framework. The numerous proposed measures of multi-period poverty and vulnerability have until now not taken into account the insights from behavioural economics. Building on reference dependent utility models we propose a new measure of both (perceived) multi-period poverty and vulnerability, where the poverty status of an individual is not only a function of (expected) consumption levels but also of (expected) losses and gains in consumption. We demonstrate the implications of the proposed measures with a small illustrative example.

Suggested Citation

  • Günther, Isabel & Maier, Johannes, 2013. "Poverty, Vulnerability, and Reference Dependent Utility," WIDER Working Paper Series 140, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp2013-140

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    1. repec:eee:wdevel:v:96:y:2017:i:c:p:65-77 is not listed on IDEAS
    2. Hill, Ruth Vargas & Porter, Catherine, 2017. "Vulnerability to Drought and Food Price Shocks: Evidence from Ethiopia," World Development, Elsevier, vol. 96(C), pages 65-77.


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