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Social Preferences under Risk: Ex-Post Fairness vs. Efficiency

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  • Alexia Gaudeul

    () (DFG Research Training Group 1411: The Economics of Innovative Change, Friedrich-Schiller-Universität, Jena)

Abstract

Social lotteries are lotteries that are played along with someone else. The experimental literature indicates that risk attitudes depend on how one's situation in the safe alternative compares to that of a peer. Evaluation of the risky alternative also depends on whether the lottery gives equal payoffs ex-post. Experiments usually present payoffs side-by-side (payoff for me, payoff for the other). This draws attention to inequality in payoffs and thus gives weight to fairness concerns. We consider whether showing own payoff as a share of the total payoff changes risk preferences. Showing total payoffs explicitly draws attention to risk at the level of the pair and may thus moderate dislike for negatively correlated lotteries, as those are less risky at the level of the group. We find that a significant minority of subjects keeps on disliking lotteries that lead to ex-post unequal distributions of payoffs. Subjects also tend to prefer taking a risk rather than obtaining safe but unequal payoff distributions. Beyond reconciling findings from the previous literature, we also discuss differences in sensitivity to the social setting across individuals and the relation between social value orientation in safe and in risky settings.

Suggested Citation

  • Alexia Gaudeul, 2015. "Social Preferences under Risk: Ex-Post Fairness vs. Efficiency," Jena Economic Research Papers 2015-010, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2015-010
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    Cited by:

    1. Rau, Holger & Müller, Stephan, 2017. "Decisions under Uncertainty in Social Contexts," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168228, Verein für Socialpolitik / German Economic Association.
    2. Anastasios Koukoumelis & M. Vittoria Levati & Matteo Ploner, 2013. "The effect of identifiability on the relationship between risk attitudes and other-regarding concerns," Jena Economic Research Papers 2013-028, Friedrich-Schiller-University Jena.
    3. Müller, Stephan & Rau, Holger A., 2017. "Decisions under uncertainty in social contexts," Center for European, Governance and Economic Development Research Discussion Papers 290, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    Altruism; Choice under risk; Efficiency; Experiment; Fairness; Inequality aversion; Lotteries; Social lotteries; Social preferences;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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