Income And Risk Preference:the Moderating Role Of Expectation Of The Gap Change Between Rich And Poor

The cycle of low income and low investment is the maintainer and driver of chronic poverty.It has been found that individual’s level of risk aversion tends to decline with income.This may be one of the reasons that lower income individuals tend to have lower investment.So how to reduce the risk aversion level of lower income individuals?Based on the related researches of expectation,this study suggests that by changing individual’s expectation of the gap change between rich and poor,it will exert different influences on the risk preferences of the rich and poor.In this way,the low-income people can get rid of poverty,and the gap between rich and poor can also be narrowed.Three sub studies of this study examined this hypothesis.Studyl was based on the secondary data analysis of large social surveys,and it contained two sub studies.Study la analyzed the data of Chinese General Social Survey(CGSS),the results suggested that the main effect of income on risk preference was not significant,the main effect of expectation of the gap change between rich and poor on risk preference was significant,and the interaction between income and expectation of the gap change between rich and poor was significant.Study lb analyzed the data of British Election Survey(BES),the results suggested that the main effect of income on risk preference was significant,the main effect of expectation of the gap change between rich and poor on risk preference was not significant,and the interaction between income and expectation of the gap change between rich and poor was significant.To further verify the causal relationship between these variables,study 2 involved a gambling task in the laboratory experiment.It used a 2(expectation of the gap change between rich and poor:high/low)*3(income:low/medium/high)between-subject manipulation of income and expectation of the gap change between rich and poor,and measured subjects’ risk preferences and perceptions of the gap between rich and poor.The results suggested that perception of the gap between rich and poor didn’t moderate the relationship between income and risk preference.After controlling for perception of the gap between rich and poor,the main effect of income on risk preference was significant,the main effect of expectation of the gap change between rich and poor on risk preference was not significant,and the interaction between income and expectation of the gap change between rich and poor was significant.To sum up,these results all suggested that,expectation of the gap change between rich and poor could moderate the relationship between income and risk preference.That is,when individuals expected the gap between rich and poor would become larger,lower income individuals would be more risk averse,and higher income individuals would be more risk seeking.When individuals expected the gap between rich and poor would become smaller,lower income individuals would be more risk seeking,and higher income individuals would be more risk averse.So by changing individual’s expectation of the gap change between rich and poor,not only can help low-income people get rid of poverty,but also can narrow the gap between rich and poor.Therefore,this study will do some help to alleviate poverty,and it also has some theoretical significance to risk-sensitivity theory.