Deciding for Others Reduces Loss Aversion

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We study risk taking on behalf of others, both with and without potential losses. A large-scale incentivized experiment is conducted with subjects randomly drawn from the Danish population. On average, decision makers take the same risks for other people as for themselves when losses are excluded. In contrast, when losses are possible, decisions on behalf of others are more risky. Using structural estimation, we show that this increase in risk stems from a decrease in loss aversion when others are affected by their choices. Terms of use: Documents in EconStor may

Do Professional Norms in the Banking Industry Favor Risk-taking?

“…Since the existing evidence suggests that people's own risk preferences largely determine how they take risks on behalf of others, this should not be a major issue (e.g., Daruvala 2007, Andersson et al 2014, Eriksen, Kvaloy, and Luzuriaga 2014. Furthermore, a large proportion of bank employees receive their compensation not only in base salaries but also in cash bonuses, stock options, and other performance-contingent rewards (e.g., Bell and Van Reenen 2014).…”

Higher-Order Risk Preferences in Social Settings

“…However, in their study the gap disappears after repetition. Applying 50-50 lotteries, Andersson et al (2016) do not observe differences in the gain domain but weakly significantly more risky choices for others in the loss domain. See also the survey by Trautmann and Vieider (2012).…”

“…With respect to risk aversion our null finding is in line with previous results. Studies also estimating risk preferences using 50-50 lotteries in the loss domain either find weakly significantly more risk taking with responsibility (Andersson et al 2016) or no significant differences . It has been argued that decision makers may harbor other-regarding concerns in these settings but have systematically biased estimates of the preferences of others (Bolton et al 2015;Füllbrunn and Luhan 2015;Pahlke et al 2015;Eriksen and Kvaloy 2010;Pollmann et al 2014).…”

“…Both studies find no significant responsibility effect with respect to payoffs in the gain domain. In addition, Andersson et al (2016) observe weakly significantly more risk taking under responsibility in the loss domain. Also considering 50-50 lotteries over gains and loss separately, Pahlke et al (2015), observe a cautions shift with respect to the gain domain and no significant difference with respect to the loss domain.…”

“…Furthermore, Bolton and Ockenfels (2010) and Andersson et al (2016) compare choices between a safe positive payoff and a 50-50 lottery with and without responsibility. Both studies find no significant responsibility effect with respect to payoffs in the gain domain.…”