Economic inequality increases risk taking

Abstract

Rising income inequality is a global trend. Increased income inequality has been associated with higher rates of crime, greater consumer debt, and poorer health outcomes. The mechanisms linking inequality to poor outcomes among individuals are poorly understood. This research tested a behavioral account linking inequality to individual decision making. In three experiments (n = 811), we found that higher inequality in the outcomes of an economic game led participants to take greater risks to try to achieve higher outcomes. This effect of unequal distributions on risk taking was driven by upward social comparisons. Next, we estimated economic risk taking in daily life using large-scale data from internet searches. Risk taking was higher in states with greater income inequality, an effect driven by inequality at the upper end of the income distribution. Results suggest that inequality may promote poor outcomes, in part, by increasing risky behavior.

Keywords: decision making; income inequality; inequality; risk taking; socioeconomic status.

Fig. 1.

Schematic illustration of the low-inequality and high-inequality conditions in study 1.

Fig. 2.

Perceived need and risk preference as a function of inequality in study 1. Columns reflect means, and error bars reflect SEs.

Fig. 3.

Risk preference as a function of inequality in study 2. Columns reflect means, and error bars reflect SEs.

Fig. 4.

Risk preference as a function of inequality and upward comparisons in study 3. Columns reflect means, and error bars reflect SEs.

Fig. 5.

Associations between inequality and risk-related search queries. Inequality is measured using the Gini coefficient (A), the 90/50 income ratio (B), and the 50/10 ratio (C). Risk index is a standardized measure of the frequency of Google search terms across 50 states.

Fig. 6.

Association between inequality and risk-related searches is mediated by searches for status goods.