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Knut Wicksell Centre for Financial Studies, Lund University Knut Wicksell Working Paper Series, Knut Wicksell Centre for Financial Studies, Lund University

No 2014/4:
Deciding for others reduces loss aversion

Ola Andersson, Håkan J. Holm, Jean-Robert Tyran and Erik Wengström ()

Abstract: We study risk taking on behalf of others, both when choices involve losses and when they do not. We conduct a large-scale incentivized experiment with subjects randomly drawn from the Danish population. On average, decision makers take the same risks for other people as for themselves when losses are excluded. In contrast, when losses are possible, decisions on behalf of others are more risky. Using structural estimation, we show that this increase in risk is substantial and is due to a decrease in loss aversion when others are affected by their choices. This finding is consistent with the account of the dual process model, i.e. an interpretation of loss aversion as a bias in decision making.

Keywords: Risk taking; loss aversion; experiment; (follow links to similar papers)

JEL-Codes: C91; D03; D81; G02; (follow links to similar papers)

21 pages, September 15, 2014

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