Higher-order risk preferences in social settings

• Published in: Experimental economics : a journal of the Economic Science Association Vol. 21; no. 2; pp. 434 - 456
• Main Authors: Heinrich, Timo, Mayrhofer, Thomas
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.06.2018; Springer Nature B.V
• Subjects: Abstinence; Behavioral/Experimental Economics; Communication; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Game Theory; Households; Lotteries; Microeconomics; Operations Research/Decision Theory; Original Paper; Risk; Risk aversion; Risk preferences; Social and Behav. Sciences; Social environment; Risk aversion; Prudence; Temperance; Experiment; C91; Responsibility; D70; D81; C92; Communication
• ISSN: 1386-4157; 1573-6938
• DOI: 10.1007/s10683-017-9541-4

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 payoff-relevant for both of them.