Inequality and Risk-Seeking: MAJOR CONCERN


#1

Although the Superstars Model provides a theoreticall framework to study inequality, I think that the book is biased towards it. Lectures on microeconomics could be significantly improved by extending section 5.2. Risk seeking is indeed a major factor that contributes to inequality. To see this in an experiment, look at the paper that is referenced below, where the inequality of initial wealth and the inequality of rewards are determinant factors in the decision making process of risk taking. As the Casablanca example shows, the inequality of rewards was the powerful driver of taking the gamble in the casino. If, in adittion, evidence and empirical analysis towards this argument is provided, I would think that it would contribute to a more complete and broader view of inequality.

Bibliography: _Hopkings, Ed.__emphasized text_Inequality and Risk-Taking Behaviour.Available at: http://homepages.econ.ed.ac.uk/~hopkinse/ineq.pdf


#2

I agree with my classmate’s point, particularly considering that the relationship between Risk Seeking and Inequality is somewhat endogenous. The text focuses on the notion that Risk Seeking can lead to Inequality (e.g. some risk-loving individuals will become entrepreneurs despite the risks and potentially reap large benefits from it, while most who try will fail) but I believe Inequality can also constrain Risk Seeking decisions from individuals. As argued in Debraj Ray’s “Development Economics” book, savings rates in societies where many individuals are either rich or poor and few stand in-between tend to be lower than in more equal societies. This stems from the consumption patterns of poor (subsistence) and rich (luxury goods) individuals, which can constrain credit and thus the ability to take part in Risk Seeking (e.g. entrepreneurship) activities.