Increased Risk Taking, Not Loss Tolerance, Drives Adolescents’ Propensity to Gamble More Under Peer Observation
54 Pages Posted: 17 Jul 2020
Date Written: April 22, 2020
Relative to adults, adolescents make more welfare-decreasing decisions, especially in the presence of peers. The consequences of these decisions result in substantial individual and societal losses in terms of lives lost, injury, hospitalization costs, and foregone opportunities. In this paper, we used a laboratory experiment with 12- to 24-year-old participants to identify which economic preference is affected by peer observation in adolescence — risk attitudes in gains, risk attitudes in losses, and/or loss aversion. We found that older adolescents (18-24 years old) while observed by peers become more risk-tolerant both in gains and in losses but more loss averse. We discuss potential mechanisms driving the result and its implications for policy.
Keywords: decision-making, adolescence, observation, loss aversion, risk attitudes
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