Decision making for others: The case of loss aversion

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.

Behavioral economic phenomena in decision-making for others

“…Reported self-other discrepancies in time preferences are again mixed: some find lower time preferences in DMfO (Shapiro, 2010), and some higher (de Oliveira & Jacobson, 2016). Reported self-other discrepancies in loss aversion findings are consistent, with loss aversion lower in DMfO (Andersson et al, 2014;Füllbrunn & Luhan, 2017;Pahlke et al, 2012;& Polman, 2012). One paper reports no self-other discrepancy in ambiguity aversion (König-Kersting & Trautmann, 2016); and one paper reports no self-other discrepancy in the identifiable-victim bias (Kogut & Beyth-Marom, 2008…”

Ambiguity attitudes in the loss domain: Decisions for self versus others

“…Second, our results suggest that ambiguity attitudes do not differ when comparing decisions for oneself and for others in the loss domain. This is rather surprising given that studies of loss aversion (Polman, 2012;Andersson et al, 2014;Füllbrunn and Luhan, 2017) suggest that people do behave differently when making decisions for others with known risk of losses. Together with the results of König-Kersting and Trautmann (2016), it seems that ambiguity attitudes are not significantly affected by the agency situation in both gain and loss domains.…”

“…This result was rather surprising given that, in the domain of known risks, a substantial number of studies show that people make different choices when making risky decisions for others, though the results are mixed (Reynolds et al, 2009;Sutter et al, 2009;Eriksen and Kvaløy, 2010;Chakravarty et al, 2011;Pollmann et al, 2014;Füllbrunn and Luhan, 2015). Additionally, when considering risky decisions in the loss domain, previous studies provide clear evidence that people are less loss-averse when making decisions for others (Polman, 2012;Andersson et al, 2014;Vieider et al, 2015;Füllbrunn and Luhan, 2017). Given these results, we conjecture that self-other differences might be more pronounced in decisions involving losses as opposed to gains.…”

Ambiguity Attitudes in the Loss Domain: Decisions for Self Versus Others.

“…Second, our results suggest that ambiguity attitudes do not differ when comparing decisions for oneself and for others in the loss domain. This is rather surprising given that studies of loss aversion (Polman, 2012;Andersson et al, 2014;Füllbrunn and Luhan, 2017) suggest that people do behave differently when making decisions for others with known risk of losses. Together with the results of König-Kersting and Trautmann (2016), it seems that ambiguity attitudes are not significantly affected by the agency situation in both gain and loss domains.…”

“…This result was rather surprising given that, in the domain of known risks, a substantial number of studies show that people make different choices when making risky decisions for others, though the results are mixed (Reynolds et al, 2009;Sutter et al, 2009;Eriksen and Kvaløy, 2010;Chakravarty et al, 2011;Pollmann et al, 2014;Füllbrunn and Luhan, 2015). Additionally, when considering risky decisions in the loss domain, previous studies provide clear evidence that people are less loss-averse when making decisions for others (Polman, 2012;Andersson et al, 2014;Vieider et al, 2015;Füllbrunn and Luhan, 2017). Given these results, we conjecture that self-other differences might be more pronounced in decisions involving losses as opposed to gains.…”