Distaste for Inequality? The Role of Risk Aversion

Abstract

Risk aversion is an important argument to explain why individuals may dislike inequality. However, this relationship has not been empirically tested for large representative samples. Using a representative panel for Germany, we estimate this relationship by linking subjective well-being (a proxy for utility), inequality, and self-reported risk attitudes. The results confirm that risk aversion has a positive effect on dislike for inequality: more risk averse individuals are also more inequality averse. This relationship however is partly driven by other individual characteristics (gender, education, and income) that are correlated with risk attitudes.