How do risk attitudes affect pro-social behavior? Theory and experiment

Abstract

We explore how risk preferences affect pro-social behavior in risky environments. We analyze a modified dictator game in which the dictator could, by reducing her own sure payoff, increase the odds that an unknown recipient wins a lottery. We first augment a standard social preferences model with reference-dependent risk attitudes and then test the model's predictions for the dictator's giving behavior using a laboratory experiment. As predicted by the model, giving behavior in the experiment is affected by the baseline risk faced by the recipient, the effectiveness of transfers in reducing baseline risk, and the dictator's degree of loss aversion. (JEL Codes: C91, D81, D91) Keywords: other-regarding preferences; pro-social behavior; reference-dependent preferences; risk * We thank Greg Sacks for insightful conversations at the beginning of this project, and Ori Heffetz and Erkut Ozbay for useful comments and suggestions. We also thank the audiences at the 2017 ESA World Meeting, the Experimental and

Social and Moral Distance in Risky Settings

“…The experimental results provide evidence for the importance of reducing the recipient's 4 Earlier than Brock et al (2013) and Saito (2013), extensions of inequality aversion models to environments of risky decision-making had been proposed by Trautmann (2009) and Krawczyk (2011)-both these authors assume risk neutrality. More recent models of other-regarding preferences under risk include Cettolin et al (2017), who allow for ex ante and ex post fairness concerns as well as for risk aversion, and Fahle and Sautua (2017), who focus on reference-dependent risk attitudes.…”