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Social Risk: the Role of Warmth and Competence

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  • Jeffrey V. Butler
  • Joshua B. Miller

Abstract

Previous research has documented a behavioral distinction between "social risk" and financial risk. For example, individuals tend to demand a premium on the objective probability of a favorable outcome when that outcome is determined by a human being instead of a randomizing device (Bohnet, Greig, Herrmann, and Zeckhauser 2008; Bohnet and Zeckhauser 2004). In this paper we ask whether social risk is always aversive, answering in the negative and identifying factors that can eliminate, or even change the sign of, the social risk premium. Motivated by the stereotype content model from the social psychology literature, which we argue has straightforward predictions for situations involving social risk (Fiske, Cuddy, and Glick 2007), we focus on two factors: "warmth", synonymous with intent, and "competence." We investigate these factors using a between-subjects experimental design that implements slight modifications of the binary trust game of Bohnet and Zeckhauser across treatments. Our results indicate that having risk generated by another human being does not, on its own, lead to a social risk premium. Instead, we find that a positive risk premium is demanded when a counter-party has interests con icting with one's own (low warmth) and, additionally, is competent. We find a negative social risk premium -i.e., social risk seeking- when the counter-party has contrary interests but lacks competence. JEL Classification: Z1, C91, D81 Keywords: Social Risk, Social Perception, Intention, Betrayal Aversion, Trust

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 522.

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Date of creation: 2014
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Handle: RePEc:igi:igierp:522

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  1. Bohnet, Iris & Zeckhauser, Richard, 2003. "Trust, Risk and Betrayal," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp03-041, Harvard University, John F. Kennedy School of Government.
  2. Zeckhauser, Richard Jay & Herrmann, Benedikt & Bohnet, Iris, 2010. "Trust and the Reference Points for Trustworthiness in Gulf and Western Countries," Scholarly Articles, Harvard Kennedy School of Government 9647371, Harvard Kennedy School of Government.
  3. Jason Aimone & Daniel Houser, 2008. "What You Don't Know Won't Hurt You: A Laboratory Analysis of Betrayal Aversion," Working Papers, George Mason University, Interdisciplinary Center for Economic Science 1008, George Mason University, Interdisciplinary Center for Economic Science, revised Sep 2008.
  4. Camerer, Colin & Weigelt, Keith, 1988. "Experimental Tests of a Sequential Equilibrium Reputation Model," Econometrica, Econometric Society, Econometric Society, vol. 56(1), pages 1-36, January.
  5. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, Elsevier, vol. 10(1), pages 122-142, July.
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