Relative Wealth Placement and Risk-Taking Behavior

• Applicant: Professorin Dr. Petra Steinorth
• Subject Area: Accounting and Finance
• Term: from 2020 to 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 433254283

We plan to investigate whether and, if so, to what extent relative wealth placement, i.e. an individual’s relative position in the wealth distribution, impact individuals’ risk-taking behavior. We first develop a stylized model where concerns about relative wealth enter utility and derive several hypotheses how placement in the wealth distribution affects risk-taking. Generally, we hypothesize that concerns about relative wealth placement specifically increase (decrease) risk-taking among the individuals placed at the bottom (top) of the wealth distribution. In addition, we derive reasonable conditions under which placement at the bottom (top) of the wealth distribution leads to more (less) risk-taking than being placed in the middle of the distribution, c.p. We plan to conduct an experimental study where we isolate changes in relative wealth placement and assess their impact on risk-taking. This allows us to disentangle the impact of relative wealth changes from absolute wealth changes.

• DFG Programme: Research Grants
• Co-Investigator: Marc-André Hillebrandt