Risk taking on behalf of others: The role of social distance

Abstract

In many different contexts individuals take decisions on behalf of others. In this paper, we focus on lotteries with negative expected value and study if (and how) risky choices made on behalf of another person differ i) compared to decisions which do not affect anyone else, and ii) depending on the social distance between who makes the decision and who is affected by it. Our results show that social distance (i.e., whether the person affected by one's decision is an unknown stranger or a friend) is an important determinant when people decide on behalf of others. Moreover, when deciding on behalf of a friend rather than only for themselves or a stranger, average individual behavior is closer to expected value maximization, exhibiting less risk taking. We interpret these findings as evidence of feelings of responsibility affecting the decision making process whenever the social distance is shortened. Controlling for order effects shows that experiencing a decrease in social distance is crucial in activating this feeling.

Fostering the Best Execution Regime: An Experiment About Pecuniary Sanctions and Accountability in Fiduciary Money Management

“…In contrast, Eriksen and Kvaløy () find that people take less risk when they are responsible for the earnings of others. This result is also supported by Montinari and Rancan (), who claim that the reduction in risk taking is higher when the social distance between the decision maker and the passive player is shortened.…”

Economic Decisions for Others Are More Favorable for Close Than Distant Clients

“…Strikingly, however, researchers only recently began to investigate how decisions for others are influenced by the social relation, which can be located on a continuum of social distance (for a recent review on psychological distance, see Trope & Liberman, 2010) between a decision recipient and a decision maker (cf. Greenstein & Xu, 2015; Montinari & Rancan, 2013). Based on classical evidence on in-group favoritism, that is, individuals habitually acting more favorably toward those they share any form of group membership with (Tajfel, 2010; Tajfel, Billig, Bundy, & Flament, 1971), a possible prediction could be that individuals deciding for others should also act more favorably on behalf of those others they have a close, rather than a distant, social relationship with.…”

Nothing to Lose: Charitable Donations as Incentives in Risk Preference Measurement

“…This can be seen in the willingness of some to take costly actions to avoid imposing externalities on peers. Indeed, Montinari and Rancan (2013) find evidence that when individuals make choices that affect both themselves and another, they take fewer risks than they would for just themselves. In particular, subjects are less likely to make investments that have a negative expected payoff.…”

“…For a charity-based method of incentivized risk preference elicitation to be a suitable substitute for a directly paid method, we must understand how responses to each relate to one another. Previous research suggests that when individuals make risk choices that affect another, as well as themselves, they exhibit greater risk aversion (Montinari and Rancan, 2013). In the current setting, the choice being made will only directly affect a charitable organization of high salience to the subjects.…”