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Social comparison and risk taking behavior

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  • Astrid Gamba
  • Elena Manzoni

Abstract

We study theoretically and experimentally decision making under uncertainty in a social environment. We introduce an interdependent preferences model that assumes that the decision maker evaluates monetary outcomes in relation both with his individual and his social reference point. In the experiment we reproduce a workplace environment whereby subjects interact in an e ffort task, earn (possibly) diff erent wages from this task and then undertake a risky decision that may give them an extra bonus. Controlling for intrinsic risk attitudes, we find that both downward and upward social comparison strongly influence risk attitudes and that they both generate more risk loving behavior. Moreover, we fi nd that a propension to envy counterposes such eff ect, by increasing risk aversion.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper266.pdf
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 266.

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Length: 47
Date of creation: Jan 2014
Date of revision: Jan 2014
Handle: RePEc:mib:wpaper:266

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Keywords: Social comparison; risk aversion; interdependent preferences; reference point;

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  1. Alain Cohn & Ernst Fehr & Benedikt Herrmann & Frédéric Schneider, 2011. "Social comparison in the workplace: evidence from a field experiment," ECON - Working Papers 007, Department of Economics - University of Zurich.
  2. Gary E. Bolton & Axel Ockenfels, 2010. "Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States: Comment," American Economic Review, American Economic Association, vol. 100(1), pages 628-33, March.
  3. Ockenfels, Axel & Sliwka, Dirk & Werner, Peter, 2010. "Bonus Payments and Reference Point Violations," IZA Discussion Papers 4795, Institute for the Study of Labor (IZA).
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  5. Ingrid Rohde & Kirsten Rohde, 2011. "Risk attitudes in a social context," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 205-225, December.
  6. Jona Linde & Joep Sonnemans, 2009. "Social Comparison and Risky Choices," Tinbergen Institute Discussion Papers 09-097/1, Tinbergen Institute.
  7. Botond Koszegi & Matthew Rabin, 2004. "A Model of Reference-Dependent Preferences," Method and Hist of Econ Thought 0407001, EconWPA.
  8. Andrew E. Clark & David Masclet & Marie Claire Villeval, 2010. "Effort and Comparison Income: Experimental and Survey Evidence," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 63(3), pages 407-426, April.
  9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
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  14. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
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  16. Gary Charness & Peter Kuhn, 2007. "Does Pay Inequality Affect Worker Effort? Experimental Evidence," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 693-723.
  17. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  18. David Card & Alexandre Mas & Enrico Moretti & Emmanuel Saez, 2010. "Inequality at Work: The Effect of Peer Salaries on Job Satisfaction," NBER Working Papers 16396, National Bureau of Economic Research, Inc.
  19. Botond Koszegi & Matthew Rabin, 2006. "Reference-Dependent Risk Attitudes," Levine's Bibliography 122247000000001267, UCLA Department of Economics.
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