Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 976: Deciding for Others Reduces Loss Aversion

Ola Andersson (), Håkan J. Holm (), Jean-Robert Tyran () and Erik Wengström ()
Additional contact information
Ola Andersson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Håkan J. Holm: Lund University
Jean-Robert Tyran: University of Vienna, Postal: and University of Copenhagen
Erik Wengström: Lund University, Postal: and University of Copenhagen

Abstract: We study risk taking on behalf of others, both with and without potential losses. A large-scale incentivized experiment is conducted 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 stems from a decrease in loss aversion when others are affected by their choices.

Keywords: Risk taking; Loss aversion; Experiment

JEL-codes: C91; D03; D81; G02

38 pages, September 17, 2013

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