Inequality and Risk-Taking Behaviour

Research output: Working paperDiscussion paper

Abstract

This paper investigates social influences on attitudes to risk and offers an evolutionary explanation of risk-taking by young low-ranked males. Becker, Murphy and Werning (2005) found that individuals about to participate in a status tournament may take fair gambles even though they are risk averse in both wealth and status. Here their model is generalised by use of the insight of Hopkins and Kornienko (2010) that in a tournament or status competition one can consider equality in terms of the status or rewards available as well as in initial endowments. While Becker et al. found that risk-taking is increasing in the equality of initial endowments, it is found here that it is increasing in the inequality of rewards in the tournament. Further, it is shown that the poorest will be risk loving if the lowest level of status awarded is sufficiently low. Thus, the disadvantaged in society rationally engage in risky behavior when social rewards are sufficiently unequal. Finally, as greater inequality in terms of social status induces gambling, it can cause greater inequality of wealth.
Original languageEnglish
PublisherEdinburgh School of Economics Discussion Paper Series
Number of pages22
Publication statusPublished - May 2011

Publication series

NameESE Discussion Papers
No.204

Keywords

  • risk
  • status
  • inequality
  • C72
  • D31
  • D62
  • D63
  • D81

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