Case Study

“Do the Wealthy Risk More Money?

This article is about that poor people more or less likely to take money risks than wealthy folks. This article find that risk attraction is more prevalent among the wealthy when the amounts of money at risk are small but, interestingly, for the larger amounts of money at risk the fraction of the nonwealthy displaying risk attraction exceeds that of the wealthy.

The study experimentally address the dependence of risk attitudes on wealth by conducting the same experiment on two groups of subjects, the Nonwealthy and the Wealthy.

Because study interested in the dependence on wealth of risk attitude, rather that the

degree of risk aversion, the subjects are required to choose between alternatives with the same

expected money value: all risk averse individuals will then choose the safe alternative, no matter

what their degree of risk aversion is. Thus, experiments do not directly address the related,

and often-studied, issue of the dependence of absolute or relative risk aversion on wealth.

Subjects were told that they would be randomly assigned, without replacement, to one of

seven prizes. But they had a 20% chance of losing the prize, and could buy an actuarially fair

insurance against this loss. Subjects were asked to decide, before knowing to which group they

would belong, whether for each of the seven possible prizes to insure or not to insure it. If the

subject chose not to insure a given prize, then we say that he or she displayed risk attraction for the

money amount of the prize, or that she risked that amount. If, on the contrary, she chose to insure,

then we say that he or she displayed risk aversion for that money amount.

The experiment is based on two groups of Catalan subjects, all in their last year of “batxillerat,”

which is the university-bound track in high school. The two groups have the same age, identical

formal education, same nationality, and involve similar...