A Tax and Redistribution Experiment with Subjects that Switch from Risk Aversion to Risk Preference (original) (raw)

Abstract

Bénabou and Ok use expected utility to argue the prospect of upward mobility (POUM) may cause majority rejection of redistributive taxes that benefit the majority. They believe the poor are not risk seeking but instead believe they may soon be rich. In paid computerized experiments that allows redistribution the poor are risk seeking and the rich risk averse even though subjects play both roles. Changing risk attitudes with wealth levels is predicted by Kahnemann and Tversky (Econometrica 47(2):263–291, 1979). Rounds that mimic actual middle class decisions produce desired tax rates over 50% suggesting POUM is only a partial explanation for low taxes.

Access this article

Log in via an institution

Subscribe and save

• Starting from 10 chapters or articles per month
• Access and download chapters and articles from more than 300k books and 2,500 journals
• Cancel anytime View plans

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

References

• Box G, Hunter G, Hunter J (1978) Statistics for experimenters. Wiley, New York
  Google Scholar
• Bénabou R, Ok E (2001) Social mobility and the demand for redistribution. QJE 116:447–487
  Article Google Scholar
• Easterlin R (2002) Happiness in economics. Edward Elgar Publishers, Northampton, MA
  Google Scholar
• Friedman M, Savage L (1948) The utility analysis of choices involving risk. J Polit Econ 56:279–304
  Article Google Scholar
• Graham C, Pettinato S (2002) Happiness and hardship: opportunity and insecurity in new Market economies. The Brookings Institution Press, Washington, DC
  Google Scholar
• Holt C, Laury S (2002) Risk aversion and incentive effects. AER 92:1644–1655
  Article Google Scholar
• Hsiao C (2003) Analysis of panel data. Cambridge University Press, Cambridge
  Google Scholar
• Kahneman D, Tversky A (1979) Prospect Theory: an analysis of decision under Risk. Econometrica 47(2): 263–291
  Article Google Scholar
• Kahneman D, Tversky A (2000) Choices, values and frames. Cambridge University Press, Cambridge
  Google Scholar
• List J (2004) Neoclassical theory versus prospect theory: evidence from the marketplace. Econometrica 72:615–625
  Article Google Scholar
• Putterman L (1997). Why have the rabble not redistributed the wealth? On the stability of democracy and unequal property. In: Roemer JE (eds). Property relations, incentives and welfare. Macmillan, London
  Google Scholar
• Rabin M “Risk Aversion and Expected Utility Theory: a calibration theorem. Econometrica 68:1281–1292
• World Bank (1999) Entering the 21st century: World development report 1999/2000. Oxford University Press, Oxford
  Google Scholar

Download references

Author information

Authors and Affiliations

1. Department of Economics, University of Colorado, Campus Box 181, P.O. Box 173364, Denver, CO, 80217-3364, USA
   Steven R. Beckman

Corresponding author

Correspondence toSteven R. Beckman.

Additional information

Professor Zheng made the original suggestion to do experiments on the POUM hypothesis. W. James Smith suggested using parameters from real societies.

Rights and permissions

About this article

Cite this article

Beckman, S.R. A Tax and Redistribution Experiment with Subjects that Switch from Risk Aversion to Risk Preference.Soc Choice Welfare 27, 627–641 (2006). https://doi.org/10.1007/s00355-006-0148-5

Download citation

• Received: 02 March 2005
• Accepted: 23 February 2006
• Published: 11 May 2006
• Issue date: December 2006
• DOI: https://doi.org/10.1007/s00355-006-0148-5

Keywords