TY - JOUR
T1 - Risk aversion when preferences are altruistic
AU - Stark, Oded
AU - Budzinski, Wiktor
AU - Jakubek, Marcin
N1 - Publisher Copyright:
© 2022
PY - 2022/7
Y1 - 2022/7
N2 - We link risk preferences, as measured by the coefficient of relative risk aversion, with the prevalence and intensity of altruism, which we operationalize by the propensity of a person to voluntarily transfer part of his wealth to another person. To quantify the intensity of altruism, we incorporate a coefficient αi∈(0,1) in the utility function of an altruistic person i. This coefficient measures the extent to which the altruistic person derives utility from the wellbeing of another person. We show that an altruistic person who is an active donor (benefactor) is more risk averse than a non-altruistic person, and that the relative risk aversion of altruistic person i is an increasing function of αi. In addition, we show, in line with intuition, that person j who is the beneficiary of an altruistic transfer is less risk averse than a comparable person who is not a beneficiary of an altruistic transfer, and that the relative risk aversion of person j is a decreasing function of αi. When we analyze a setting in which two persons are altruistic towards each other, we find that, in essence, the risk aversion consequences of mutual altruism do not differ from the risk aversion consequences of unilateral altruism.
AB - We link risk preferences, as measured by the coefficient of relative risk aversion, with the prevalence and intensity of altruism, which we operationalize by the propensity of a person to voluntarily transfer part of his wealth to another person. To quantify the intensity of altruism, we incorporate a coefficient αi∈(0,1) in the utility function of an altruistic person i. This coefficient measures the extent to which the altruistic person derives utility from the wellbeing of another person. We show that an altruistic person who is an active donor (benefactor) is more risk averse than a non-altruistic person, and that the relative risk aversion of altruistic person i is an increasing function of αi. In addition, we show, in line with intuition, that person j who is the beneficiary of an altruistic transfer is less risk averse than a comparable person who is not a beneficiary of an altruistic transfer, and that the relative risk aversion of person j is a decreasing function of αi. When we analyze a setting in which two persons are altruistic towards each other, we find that, in essence, the risk aversion consequences of mutual altruism do not differ from the risk aversion consequences of unilateral altruism.
KW - Altruism
KW - Intensity of altruism
KW - Interpersonal transfers
KW - Mutual altruism
KW - Relative risk aversion
KW - Unilateral altruism
KW - Variation in risk-taking preferences
UR - http://www.scopus.com/inward/record.url?scp=85130557414&partnerID=8YFLogxK
U2 - 10.1016/j.econlet.2022.110450
DO - 10.1016/j.econlet.2022.110450
M3 - ???researchoutput.researchoutputtypes.contributiontojournal.article???
AN - SCOPUS:85130557414
SN - 0165-1765
VL - 216
JO - Economics Letters
JF - Economics Letters
M1 - 110450
ER -