Scandinavian Working Papers in Economics
Knut Wicksell Working Paper Series,
Lund University, Knut Wicksell Centre for Financial Studies
No 2014/4: 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: Knut Wicksell Centre for Financial Studies, Lund University
Jean-Robert Tyran: University of Vienna and University of Copenhagen
Erik Wengström: Knut Wicksell Centre for Financial Studies, Lund University
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
21 pages, September 15, 2014
Full text files
online_appendix__2014-4.pdfOnline Appendix
kwc-wp-2014-4.pdf
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