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Misery loves company: Social regret and social interaction effects in choices under risk and uncertainty

  • Cooper, David J.
  • Rege, Mari

Extensive field evidence shows individuals' decisions in settings involving uncertainty depend on their peers' decisions. One hypothesized cause of peer group effects is social interaction effects: an individual's utility from an action is enhanced by others taking the same action. We employ a series of controlled laboratory experiments to study the causes of peer effects in choice under uncertainty. We find strong peer group effects in the laboratory. Our design allows us to rule out social learning, social norms, group affiliation, and complementarities as possible causes for the observed peer group effects, leaving social interaction effects as the likely cause. We use a combination of theory and empirical analysis to show that preferences including "social regret" are more consistent with the data than preferences including a taste for conformity. We observe spillover effects, as observing another's choice of one risky gamble makes all risky gambles more likely to be chosen.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 73 (2011)
Issue (Month): 1 (September)
Pages: 91-110

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Handle: RePEc:eee:gamebe:v:73:y:2011:i:1:p:91-110
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