Giving in the Face of Risk

Abstract

The decision how to share resources with others often needs to be taken under uncertainty on its allocational consequences. Although risk preferences are likely important, existing research is silent about how social and risk preferences interact in such situations. In this paper we provide experimental evidence on this question. In a first experiment givers are not exposed to risk while beneficiaries' final earnings may be larger or smaller than the allocation itself, depending on the realized state of the world. In a second experiment, risk affects the earnings of givers but not of beneficiaries. We find that individuals' risk preferences are predictive for giving in both experiments. Increased risk exposure of beneficiaries tends to decrease giving whereas increased risk exposure of givers has no effect. We propose a simple non-linear generalization of a model allowing for other-regarding preferences, ex-post and ex-ante fairness, and risk aversion. We find some support for it in our data when risk is on the beneficiaries side but less so when risk is on the givers side. Our results point to the importance of the further development of models of social preferences that also incorporate risk preferences.

Keywords: fairness, uncertainty, risk, social preferences, risk preferences, experiment

JEL Classification: C91, D03, D64, D81