Higher-Order Risk Preferences in Social Settings

Abstract

License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.Additional information: Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. Abstract We study prudence and temperance (next to risk aversion) in social settings. Previous experimental studies have shown that these higher-order risk preferences affect the choices of individuals deciding privately on lotteries that only affect their own payoff. Yet, many risky and financially relevant decisions are made in the social settings of households or organizations. We elicit higher-order risk preferences of individuals and systematically vary how an individual's decision is made (alone or while communicating with a partner) and who is affected by the decision (only the individual or the partner as well). In doing so, we can isolate the effects of other-regarding concerns and communication on choices. Our results reveal that the majority of choices are risk averse, prudent, and temperate across social settings. We also observe that individuals are influenced significantly by the preferences of a partner when they are able to communicate and choices are payoffrelevant for both of them.

Physician behavior and conditional altruism: the effects of payment system and uncertain health benefit

“…Previous experimental research has shown that individuals make different choices under risk than under ambiguity, and that they tend to prefer situations characterized by risk rather than ambiguity even when one takes their subjective beliefs about probabilities into account (Ellsberg 1961; for a review see, e.g., Camerer and Weber 1992). Previous studies that investigated risk taking on behalf of others using neutral or non-medical frames have indicated mixed results compared to risk taking for oneself (e.g., Andersson et al 2016;Chakravarty et al 2011;Heinrich and Mayrhofer 2018;Vieider et al 2016), while similar comparison for decisions under ambiguity is scarce (König-Kersting and Trautmann 2016). Arrieta et al (2017) investigated attitudes toward risk taking for others in different medical contexts and found that subjects on average were risk averse but also that the magnitude of risk aversion varied across different contexts.…”

Risk aversion, prudence and temperance: It is a matter of gap between moments

“…andBaillon et al [2018] observe that the majority of people make prudent choices. Regarding the role played by the fourth moment, results are not so strong: it has been shown that the proportion of people making temperate choices is usually smaller than that making prudent ones (see, for example, Ebert and Wiesen, 2014;Heinrich and Mayrhofer, 2018;and Krieger and Mayrhofer, 2017). For a quick resume, see Appendix A1 of ?.…”

An Experimental Investigation of Insulating and Non-Insulating Cost Allocations.

“…As an example, if an individual's project selections in early periods perform poorly, then the individual may be inclined to take less future risk to feel better about their compensation prospects or may "go for broke" and take more risk going forward to try to register a large payoff with one of their remaining selections (e.g., Gächter, Johnson, and Hermann 2007;Drake and Kohlmeyer 2010;Delfino, Marengo, and Ploner 2016). Similarly, the project results attained by an individual's partner could affect future risky choices and cooperation due to individuals' concerns about equity or relative performance (e.g., Levinger and Schneider 1969;Fehr and Schmidt 1999;Delfino et al 2016;Heinrich and Mayrhofer 2018).…”