Defaults, Normative Anchors and the Occurrence of Risky and Cautious Shifts

Tinbergen Institute Discussion Paper 2017-083/I

37 Pages Posted: 13 Sep 2017

See all articles by Stephan Jagau

Stephan Jagau

University of Amsterdam

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Date Written: September 3, 2017

Abstract

Choice shifts occur when individuals advocate a risky (safe) decision when acting as part of a group even though they prefer a safe (risky) decision when acting as individuals. Even though research in psychology and economics has produced a mass of evidence on this puzzling phenomenon, there is no agreement about which mechanism produces choice shifts. In an experiment, we investigate the performance of two prominent mechanisms that have been proposed to explain the phenomenon; (i) rank-dependent utility and (ii) a desire to conform to the wishes of the majority. The evidence provides clear support for the conformity explanation.

Keywords: Risky Shift, Cautious Shift, Conformity, Diffusion of Responsibility, Rank-Dependent Utility

JEL Classification: D03, D71, D81

Suggested Citation

Jagau, Stephan and Offerman, Theo, Defaults, Normative Anchors and the Occurrence of Risky and Cautious Shifts (September 3, 2017). Tinbergen Institute Discussion Paper 2017-083/I. Available at SSRN: https://ssrn.com/abstract=3035400 or http://dx.doi.org/10.2139/ssrn.3035400

Stephan Jagau (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4294 (Phone)
+31 20 525 5283 (Fax)

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