Premium
Poverty, Vulnerability, and Reference‐Dependent Utility
Author(s) -
Günther Isabel,
Maier Johannes K.
Publication year - 2014
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12081
Subject(s) - poverty , vulnerability (computing) , consumption (sociology) , economics , relevance (law) , public economics , expected utility hypothesis , loss aversion , econometrics , microeconomics , economic growth , computer science , sociology , financial economics , political science , computer security , social science , law
The numerous proposed measures of multi‐period poverty and vulnerability have until now not taken into account the insights from behavioral economics. In this paper we argue that recent evidence on individuals' decision making is of high relevance for the measurement of poverty when switching from a static and certain to a dynamic and uncertain framework. Building on reference‐dependent utility we propose new measures of both (perceived) multi‐period poverty and vulnerability, where the poverty status of an individual is a function not only of (expected) consumption levels but also of (expected) losses and gains in consumption. We demonstrate the implications of the proposed measures with a small illustrative example.