Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2013:30: 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)
Håkan J. Holm: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Jean-Robert Tyran: Department of Economics, University of Vienna, Postal: Oskar-Morgenstern-Platz 1, A-1090 Vienna, Austria
Erik Wengström: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

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

39 pages, September 11, 2013

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