Relative deprivation and economic decisions

OPUS 7, Principal Investigator MARCIN JAKUBEK

One of the important problems in economics is the issue of modeling individual risk preferences depending on one's own income and the income of other members of the community. Starting from the postulate of Friedman and Savege (1948) that risk preferences change with the position of a person in the income hierarchy, attempts have been made to explain this phenomenon (inconsistent with the classical modeling of income preferences by means of a concave function) by inclusion in the the utility of the factor responsible for relative income (see Gregory, 1980; Robson 1992).
Using one of the popular measures - the relative deprivation index - to quantify income comparisons in the utility function, an attempt will be made to systematically explain the role of a person's position in the income hierarchy on his risk preferences, as measured by the Arrow-Pratt coefficient of relative risk aversion. In particular, research conducted in 2014 and 2015 will be continued in order to extend the analyzes to further areas, including attempts to show that an increase in relative deprivation can not only reduce a person's risk aversion, but also change preferences from risk aversion to risk aversion. In addition, the impact of expanding the reference group on the aggregated level of relative risk aversion in the population will be analysed.