Socially interdependent risk taking

• Published in: Theory and decision Vol. 95; no. 3; pp. 365 - 378
• Main Authors: Karakostas, Alexandros, Morgan, Giles, Zizzo, Daniel John
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.10.2023; Springer Nature B.V
• Subjects: Behavioral/Experimental Economics; Clustering; COVID-19; Decisions; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Experiments; Factorial design; Finance; Game Theory; Hypotheses; Insurance; Investments; Management; Operations Research/Decision Theory; Pandemics; Peers; Risk; Risk taking; Securities markets; Social and Behav. Sciences; Statistics for Business; Risk; Peer effects; Social pressure; Imitation
• ISSN: 0040-5833; 1573-7187
• DOI: 10.1007/s11238-023-09927-x

We report the results of an experiment on how individual risk taking clusters together when subjects are informed of peers’ previous risk taking decisions. Subjects are asked how much of their endowment they wish to allocate in a lottery in which there is a 50% chance the amount they invest will be tripled and a 50% chance their investment will be lost. We use a 2 × 2 factorial design varying: (i) whether the subjects initially observed high or low investment social anchors, (ii) whether information about the investment decisions of other subjects in their social group is provided. We find strong evidence that individuals' risk taking decisions are malleable to that of their peers, which in turn leads to social clustering of risk taking. Social anchors shape initial risk taking, with mean investment then converging to a high level across treatments.