Wednesday, October 18, 2017

Deciding for oneself, we are averse to loss; deciding for one other, aversion is significantly reduced

Decision making for others: The case of loss aversion. Sascha C. Füllbrunn and Wolfgang J. Luhan. Economics Letters, https://doi.org/10.1016/j.econlet.2017.09.037

Highlights
•    We test whether loss aversion plays a role in risky decisions making for others.
•    Deciding for oneself, we find loss aversion levels similar to the literature.
•    Deciding for one other only, we find loss aversion to be significantly reduced.
•    Deciding for oneself and one other at the same time, we find no difference.

Abstract: Risky decisions are at the core of economic theory. While many of these decisions are taken on behalf of others rather than for oneself, the existing literature finds mixed results on whether people take more or less risk for others then for themselves. Recent studies suggest that taking decisions for others reduces loss aversion, thereby increasing risk taking on behalf of others. To test this, we elicit loss aversion in three treatments: making risky decisions for oneself, for one other subject, or for the decision maker and another person combined. We find a clear treatment effect when making decisions for others but not when making decisions for both.

JEL classification: C9; D3; D8
Keywords: Decision making for others; Risk taking; Loss aversion; Experiment

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