Social Comparison and Risky Choices

Tinbergen Institute Discussion Paper 09-097/1

38 Pages Posted: 13 Nov 2009  

Jona Linde

CREED, Amsterdam School of Economics

Joep Sonnemans

University of Amsterdam - Amsterdam School of Economics (ASE)

Date Written: November 12, 2009

Abstract

This study attempts to combine two traditional fields in microeconomics: individual decision making under risk and decision making in an interpersonal context. The influence of social comparison on risky choices is explored in an experiment in which participants make a series of choices between lotteries with only positive outcomes. Three kinds of choice situations are employed. In the loss and gain context the social referent receives a fixed payoff that is respectively higher and lower than all possible payoffs of the decision maker. In the neutral context social referent and decision maker will always earn the same amount. In the gain and loss contexts the decision maker has no influence on the earnings of the social referent so strategic behavior or social preferences can play no role. We find that decision makers are more risk-averse in the loss context than in the gain context, with the behavior in the neutral context in between. This result is in opposition to the predictions of prospect theory extrapolated to a social context.

Keywords: Social comparison, social preferences, decision making under risk, experiment

JEL Classification: C91, C92, D63

Suggested Citation

Linde, Jona and Sonnemans, Joep, Social Comparison and Risky Choices (November 12, 2009). Tinbergen Institute Discussion Paper 09-097/1. Available at SSRN: https://ssrn.com/abstract=1504567 or http://dx.doi.org/10.2139/ssrn.1504567

Jona Linde (Contact Author)

CREED, Amsterdam School of Economics ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Joep Sonnemans

University of Amsterdam - Amsterdam School of Economics (ASE) ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31 20 525 4249 (Phone)
+31 20 525 5283 (Fax)

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