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A Tax and Redistribution Experiment with Subjects that Switch from Risk Aversion to Risk Preference

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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.

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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

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  1. Steven R. Beckman
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Correspondence to Steven 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.

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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

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  • DOI: https://doi.org/10.1007/s00355-006-0148-5

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