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Relative deprivation and financial risk taking✰

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  • Pak, Tae-Young

Abstract

This study examines whether relative deprivation is associated with risk preference and behavior. Relative deprivation measured by the Yitzhaki and Deaton indices and financial risk-taking outcomes are obtained from a representative household survey of Korean adults. Results show that relative deprivation is negatively associated with risk aversion, and this association is significant for men and individuals who experienced increasing relative deprivation. However, relative deprivation is not associated with investment outcomes such as risky asset ownership and risky asset share of financial net worth. These results are consistent with reference-dependent preference and social-comparison model that incorporates social standing into utility function.

Suggested Citation

  • Pak, Tae-Young, 2023. "Relative deprivation and financial risk taking✰," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002994
    DOI: 10.1016/j.frl.2023.103927
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    More about this item

    Keywords

    Risk preference; Reference point; Reference-dependent utility; Stock market participation; Portfolio allocation;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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