Relative deprivation as a cause of risky behaviors

Research output: Contribution to journalArticlepeer-review

Abstract

Combining a standard measure of concern about low relative wealth and a standard measure of relative risk aversion leads to a novel explanation of variation in risk-taking behavior identified and documented by social psychologists and economists. We obtain two results: (1) Holding individual i’s wealth and his rank in the wealth distribution constant, the individual’s relative risk aversion decreases when he becomes more relatively deprived as a result of an increase in the average wealth of the individuals who are wealthier than he is. (2) If relative deprivation enters the individual’s utility function approximately linearly then, holding constant individual i’s wealth and the average wealth of the individuals who are wealthier than he is, the individual’s relative risk aversion decreases when he becomes more relatively deprived as a result of a decline in his rank. Our findings provide a theoretical support for evidence about the propensity of relatively deprived individuals to gamble and resort to other risky behaviors.

Original languageEnglish
Pages (from-to)138-146
Number of pages9
JournalJournal of Mathematical Sociology
Volume44
Issue number3
DOIs
StatePublished - 2 Jul 2020
Externally publishedYes

Keywords

  • Concern about low relative wealth
  • Relative deprivation
  • Risk aversion
  • Social preferences

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