Perceived Similarity and Risk-Taking for Others

Abstract

Recent studies on risk-taking for others report either a “risky” or a “cautious shift”, that is, more or less risk-taking for a partner compared to oneself. In addition to contradicting results, there exists no consensus about the channels involved. This study provides an experimental test of Construal Level Theory as an explanation for differences in risk-taking for oneself and a partner. By varying the perceived similarity to a partner, we manipulate the construal level while keeping information about the partner’s risk preferences constant. Using this manipulation, we find that subjects take significantly more risk for a dissimilar partner, for whom the construal level is high, than for a similar partner, for whom the construal level is low. In the gain domain, the target decision gap, that is, the difference in risk-taking for oneself and a partner, is significantly positive for a dissimilar partner and negligible for a similar partner. In the mixed domain, we find positive target decision gaps for similar and dissimilar partners.

Keywords: Social distance, Other-regarding preferences, Risk-taking, Loss aversion

JEL Classification: A12, A13, C91, D01, D81, D90, D91