January 2010

IZA DP No. 4703: Inequality Aversion and Risk Attitudes

substantially revised version published as "Distaste for Inequality? The Role of Risk Aversion" in: M. Rojas (ed.), The Economics of Happiness, Springer, 2019.

Using self reported measures of life satisfaction and risk attitudes, we empirically test whether there is a relationship between individuals inequality and risk aversion. The empirical analysis uses the German SOEP household panel for the years 1997 to 2007 to conclude that the negative effect of inequality measured by the sample gini coefficient by year and federal state is larger for those individuals who report to be less willing to take risks. Nevertheless, the empirical results suggest that even though inequality and risk aversion are related, they are not the same thing. The paper shows that the relationship between risk attitudes and inequality aversion survives the inclusion of individual characteristics (i.e. income, education, and gender) that may be correlated with both risk attitudes and inequality aversion.