IDEAS home Printed from https://ideas.repec.org/p/mpi/wpaper/tax-mpg-rps-2016-12.html
   My bibliography  Save this paper

You Are Not Alone: Experimental Evidence on Risk Taking When Social Comparisons Matter

Author

Listed:
  • Harald W. Lang

Abstract

We provide experimental evidence that social comparisons affect individual risk taking. In particular, we focus on the case when individuals care about their income-rank. Our model predicts that compared to standard expected utility theory income-rank comparisons lead to less (more) risk taking in case of lotteries with more probability mass on the downside (upside) of the distribution. Evidence shows in line with our predictions that individuals take less risk when lotteries have more probability weight on the downside. However, we do not find an effect for lotteries with more upside probability mass. The effect of social comparisons on risk taking is strongest when the deciding subject and the reference subject are of the same gender.

Suggested Citation

  • Harald W. Lang, 2016. "You Are Not Alone: Experimental Evidence on Risk Taking When Social Comparisons Matter," Working Papers tax-mpg-rps-2016-12, Max Planck Institute for Tax Law and Public Finance.
    • Handle: RePEc:mpi:wpaper:tax-mpg-rps-2016-12
    as

    Download full text from publisher

    File URL: http://www.tax.mpg.de/RePEc/mpi/wpaper/TAX-MPG-RPS-2016-12.pdf
    File Function: Full text (original version)
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Cooper, David J. & Rege, Mari, 2011. "Misery loves company: Social regret and social interaction effects in choices under risk and uncertainty," Games and Economic Behavior, Elsevier, vol. 73(1), pages 91-110, September.
    2. Jona Linde & Joep Sonnemans, 2012. "Social comparison and risky choices," Journal of Risk and Uncertainty, Springer, vol. 44(1), pages 45-72, February.
    3. Brennan, Geoffrey & González, Luis G. & Güth, Werner & Levati, M. Vittoria, 2008. "Attitudes toward private and collective risk in individual and strategic choice situations," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 253-262, July.
    4. Uri Gneezy & Jan Potters, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 631-645.
    5. Stefan Grimm & Martin G. Kocher & Michal Krawczyk & Fabrice Lec, 2021. "Sharing or gambling? On risk attitudes in social contexts," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1075-1104, December.
    6. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    7. W. Viscusi & Owen Phillips & Stephan Kroll, 2011. "Risky investment decisions: How are individuals influenced by their groups?," Journal of Risk and Uncertainty, Springer, vol. 43(2), pages 81-106, October.
    8. Richard E. Quandt, 1986. "Betting and Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(1), pages 201-207.
    9. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-116, March.
    10. Konrad, Kai A. & Lommerud, Kjell Erik, 1993. "Relative standing comparisons, risk taking, and safety regulations," Journal of Public Economics, Elsevier, vol. 51(3), pages 345-358, July.
    11. Alexander W. Cappelen & James Konow & Erik ?. S?rensen & Bertil Tungodden, 2013. "Just Luck: An Experimental Study of Risk-Taking and Fairness," American Economic Review, American Economic Association, vol. 103(4), pages 1398-1413, June.
    12. Bolton, Gary E. & Ockenfels, Axel & Stauf, Julia, 2015. "Social responsibility promotes conservative risk behavior," European Economic Review, Elsevier, vol. 74(C), pages 109-127.
    13. Schwerter, Frederik, 2013. "Social Reference Points and Risk Taking," Bonn Econ Discussion Papers 11/2013, University of Bonn, Bonn Graduate School of Economics (BGSE).
    14. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2011. "Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 522-550, June.
    15. Bougheas, Spiros & Nieboer, Jeroen & Sefton, Martin, 2013. "Risk-taking in social settings: Group and peer effects," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 273-283.
    16. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, vol. 60(4), pages 837-857, July.
    17. Bilancini, Ennio & Boncinelli, Leonardo, 2008. "Ordinal vs cardinal status: Two examples," Economics Letters, Elsevier, vol. 101(1), pages 17-19, October.
    18. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    19. Frank, Robert H., 2008. "Should public policy respond to positional externalities?," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1777-1786, August.
    20. Gary Charness & Uri Gneezy, 2010. "Portfolio Choice And Risk Attitudes: An Experiment," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 133-146, January.
    21. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    22. 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.
    23. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    24. Ingrid Rohde & Kirsten Rohde, 2011. "Risk attitudes in a social context," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 205-225, December.
    25. Philip Grossman & Catherine Eckel, 2015. "Loving the long shot: Risk taking with skewed lotteries," Journal of Risk and Uncertainty, Springer, vol. 51(3), pages 195-217, December.
    26. Andrew E. Clark & Nicolai Kristensen & Niels Westergård-Nielsen, 2009. "Economic Satisfaction and Income Rank in Small Neighbourhoods," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 519-527, 04-05.
    27. Gary E Bolton & Jordi Brandts & Axel Ockenfels, 2005. "Fair Procedures: Evidence from Games Involving Lotteries," Economic Journal, Royal Economic Society, vol. 115(506), pages 1054-1076, October.
    28. Matthew Rabin & Georg Weizsacker, 2009. "Narrow Bracketing and Dominated Choices," American Economic Review, American Economic Association, vol. 99(4), pages 1508-1543, September.
    29. Fehr, Ernst & Schmidt, Klaus M., 2006. "The Economics of Fairness, Reciprocity and Altruism - Experimental Evidence and New Theories," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 8, pages 615-691, Elsevier.
    30. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    31. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    32. Sutter, Matthias, 2007. "Are teams prone to myopic loss aversion? An experimental study on individual versus team investment behavior," Economics Letters, Elsevier, vol. 97(2), pages 128-132, November.
    33. Garrett, Thomas A. & Sobel, Russell S., 1999. "Gamblers favor skewness, not risk: Further evidence from United States' lottery games," Economics Letters, Elsevier, vol. 63(1), pages 85-90, April.
    34. Werner Güth & M. Vittoria Levati & Matteo Ploner, 2008. "On The Social Dimension Of Time And Risk Preferences: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 261-272, April.
    35. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    36. Gary S. Becker & Kevin M. Murphy & Ivan Werning, 2005. "The Equilibrium Distribution of Income and the Market for Status," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 282-310, April.
    37. Andreas Friedl & Katharina Lima de Miranda & Ulrich Schmidt, 2014. "Insurance demand and social comparison: An experimental analysis," Journal of Risk and Uncertainty, Springer, vol. 48(2), pages 97-109, April.
    38. Dijk, Oege & Holmen, Martin & Kirchler, Michael, 2014. "Rank matters–The impact of social competition on portfolio choice," European Economic Review, Elsevier, vol. 66(C), pages 97-110.
    39. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
    40. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, July.
    41. Yoella Bereby-Meyer & Alvin E. Roth, 2006. "The Speed of Learning in Noisy Games: Partial Reinforcement and the Sustainability of Cooperation," American Economic Review, American Economic Association, vol. 96(4), pages 1029-1042, September.
    42. 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 628-633, March.
    43. Renate Schubert, 1999. "Financial Decision-Making: Are Women Really More Risk-Averse?," American Economic Review, American Economic Association, vol. 89(2), pages 381-385, May.
    44. Michal Krawczyk & Fabrice Le Lec, 2010. "‘Give me a chance!’ An experiment in social decision under risk," Experimental Economics, Springer;Economic Science Association, vol. 13(4), pages 500-511, December.
    45. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
    46. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
    47. Colin F. Camerer & Howard Kunreuther, 1989. "Decision processes for low probability events: Policy implications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(4), pages 565-592.
    48. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bolton, Gary E. & Ockenfels, Axel & Stauf, Julia, 2015. "Social responsibility promotes conservative risk behavior," European Economic Review, Elsevier, vol. 74(C), pages 109-127.
    2. Alexia Gaudeul, 2013. "Social preferences under uncertainty," Jena Economics Research Papers 2013-024, Friedrich-Schiller-University Jena.
    3. Stefan Grimm & Martin G. Kocher & Michal Krawczyk & Fabrice Lec, 2021. "Sharing or gambling? On risk attitudes in social contexts," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1075-1104, December.
    4. Astrid Gamba & Elena Manzoni & Luca Stanca, 2017. "Social comparison and risk taking behavior," Theory and Decision, Springer, vol. 82(2), pages 221-248, February.
    5. Amrei Lahno & Marta Serra-Garcia, 2015. "Peer effects in risk taking: Envy or conformity?," Journal of Risk and Uncertainty, Springer, vol. 50(1), pages 73-95, February.
    6. Celse, Jeremy & Karakostas, Alexandros & Zizzo, Daniel John, 2023. "Relative risk taking and social curiosity," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 243-264.
    7. Oege Dijk, 2017. "For whom does social comparison induce risk-taking?," Theory and Decision, Springer, vol. 82(4), pages 519-541, April.
    8. Axel Ockenfels & Dirk Sliwka & Peter Werner, 2015. "Bonus Payments and Reference Point Violations," Management Science, INFORMS, vol. 61(7), pages 1496-1513, July.
    9. Müller, Stephan & Rau, Holger A., 2019. "Decisions under uncertainty in social contexts," Games and Economic Behavior, Elsevier, vol. 116(C), pages 73-95.
    10. Natalia Montinari & Michela Rancan, 2018. "Risk taking on behalf of others: The role of social distance," Journal of Risk and Uncertainty, Springer, vol. 57(1), pages 81-109, August.
    11. Harald Lang & Florian Morath, 2015. "A Glance into the Tunnel: Experimental Evidence on Income Comparisons under Uncertainty," Working Papers tax-mpg-rps-2015-13, Max Planck Institute for Tax Law and Public Finance.
    12. Montizaan, Raymond M. & Vendrik, Maarten C.M., 2014. "Misery Loves Company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 1-26.
    13. Delfino, Alexia & Marengo, Luigi & Ploner, Matteo, 2016. "I did it your way. An experimental investigation of peer effects in investment choices," Journal of Economic Psychology, Elsevier, vol. 54(C), pages 113-123.
    14. Dohmen, Thomas, 2014. "Behavioral labor economics: Advances and future directions," Labour Economics, Elsevier, vol. 30(C), pages 71-85.
    15. Tim Friehe & Mario Mechtel & Markus Pannenberg, 2014. "Positional Income Concerns: Prevalence and Relationship with Personality and Economic Preferences," IAAEU Discussion Papers 201411, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    16. Jona Linde & Joep Sonnemans, 2012. "Social Preferences in Private Decisions," Tinbergen Institute Discussion Papers 12-003/1, Tinbergen Institute.
    17. Angela C. M. Oliveira, 2021. "When risky decisions generate externalities," Journal of Risk and Uncertainty, Springer, vol. 63(1), pages 59-79, August.
    18. Lang, Harald & Konrad, Kai A. & Morath, Florian, 2015. "A Glance into the Tunnel: Experimental Evidence of Expectations Versus Comparison Considerations," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113017, Verein für Socialpolitik / German Economic Association.
    19. Hajdu, Tamás & Hajdu, Gábor, 2011. "A hasznosság és a relatív jövedelem kapcsolatának vizsgálata magyar adatok segítségével [Examining the relation of utility and relative income using Hungarian data]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 56-73.
    20. Andrew E. Clark & Claudia Senik, 2010. "Will GDP growth increase happiness in developing countries?," PSE Working Papers halshs-00564985, HAL.

    More about this item

    Keywords

    Social comparisons; individual risk taking; status; portfolio choice; relative income concerns; experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mpi:wpaper:tax-mpg-rps-2016-12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hans Mueller (email available below). General contact details of provider: https://edirc.repec.org/data/mptaxde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.