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What You Don't Know Won't Hurt You: A Laboratory Analysis of Betrayal Aversion

27 Pages Posted: 13 Apr 2010  

Jason Anthony Aimone

Baylor University - Department of Economics

Daniel Houser

George Mason University - Department of Economics

Date Written: August 31, 2009

Abstract

Recent research argues “betrayal aversion” leads many people to avoid risk more when a person, rather than nature, determines the outcome of uncertainty. Unfortunately, previous studies conflate betrayal aversion with established preference effects including loss aversion. Using a novel investment-game experiment that varies how strategic uncertainty is resolved, we here provide rigorous evidence on detrimental effects of betrayal aversion. The impact is substantial: holding fixed the probability of betrayal, the possibility of knowing that one has been betrayed reduces investment by about one-third. We suggest emotion-regulation underlies this result and explains the importance of impersonal, institution-mediated exchange in promoting economic efficiency.

JEL Classification: C91, D03, D81

Suggested Citation

Aimone, Jason Anthony and Houser, Daniel, What You Don't Know Won't Hurt You: A Laboratory Analysis of Betrayal Aversion (August 31, 2009). GMU Working Paper in Economics No. 10-13. Available at SSRN: https://ssrn.com/abstract=1589146 or http://dx.doi.org/10.2139/ssrn.1589146

Jason Anthony Aimone (Contact Author)

Baylor University - Department of Economics ( email )

P.O. Box 98003
Waco, TX 76798-8003
United States

Daniel Houser

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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