RELATIVE STANDING COMPARISONS, RISK-TAKING, AND SAFETY REGULATIONS

We study the question of how relative standing comparisons, or 'status seeking, influence risk taking. When utility is separable in consumption and status the following results apply. With non-systematic risks, more concern for status leads to more (less) risk taking when, in a sense made precise in the paper, the utility function is less (more) concave in status than in pure consumption. With systematic risk, risk taking always increases with the concern for status. However, status seeking always implies socially excessive fisk taking, thus suggesting a role for public regulation of risky choices.