Behavioral economic phenomena in decision-making for others

We examine whether biases identified in the behavioral-economics literature apply in decision-making for others (DMfO). We conduct a laboratory experiment in which subjects make decisions on behalf of themselves and others in eighteen tasks that measure the following biases: present-bias in time preferences, reflection effect in risk preferences, compound risk aversion, decoy effect, anchoring bias, endowment effect, and identifiable-victim bias. In our experiment, DMfO is DMfO simpliciter: unincentivized decisions made by one individual on behalf of another–the individual making decisions faces no direct costs or benefits when engaging in DMfO (as she would in a principal-agent framework or with bequest motives), and DMfO is not framed as giving advice or guessing others’ behavior. Although we find that DMfO is by and large statistically indistinguishable from decisions for oneself, we identify the following self-other discrepancies: (i) willingness to pay (i.e., bids to procure goods and donations to charity) is higher in DMfO than in decisions for oneself in tasks associated with the anchoring bias, end owment effect, and identifiable-victim bias; and (ii) the propensity to give uninterpretable responses is higher in DMfO than in decisions for oneself. We also find order effects, with DMfO more similar to decisions for oneself when DMfO follows decision making for oneself. Lastly, in response to open-ended items soliciting self-reports of subjects’ approach to DMfO, most subjects report having followed some version of the “Golden Rule” (e.g., deciding for others as they would for themselves) or having tried to maximize the other subject’s payment or utility; very few subjects report motivations that can be construed as rivalrous.     

Demand for decision autonomy and the desire to avoid responsibility in risky environments: Experimental evidence

This paper experimentally studies individuals’ willingness to pay for the authority to make risky decisions for themselves, and the willingness to take responsibility for others, as primary determinants of leadership willingness. We consider a setup involving a pair of individuals, where one individual is designated to make both parties’ decisions by default. Depending on treatment, either party can express a willingness to pay to change this situation. If one’s willingness to pay to make her own decision herself is positive (negative), we interpret it as a demand for autonomy (a desire to delegate). On the flip side, if one’s willingness to pay to avoid making a decision on behalf of another person is positive (negative), we interpret it as a desire to avoid responsibility (a demand for authority). We find that on average, individuals are willing to pay positive amounts of money to make their decisions themselves, and incur positive but smaller opportunity costs for the right to make decisions for others. Certain individual and contextual characteristics emerge as important predictors. Notably, (1) men are more likely to demand both autonomy and authority at the same time, (2) individuals with other regarding preferences are more likely to pay to avoid taking responsibility for others’ decisions when the probability of loss is high. Exploring differences between individuals’ own decisions and the decisions they make on behalf of others, we find that subjects with other-regarding preferences tend to “cautious-shift” when making decisions on behalf of others. Also, we find that individuals who would like to avoid responsibility also tend to “shift” their decisions when put in a decision-making role. The results have implications for the allocation of decision-making authority in pairs and leadership.     

Parenting is risky business: parental risk attitudes in small stakes decisions on behalf of their children

Parents often face risk when making decisions on behalf of their children, since outcomes may affect child development. We perform an incentive-compatible field experiment using the Holt and Laury (Am Econ Rev 92(5):1644–1655, 2002) design to elicit parental risk preferences in a stewardship decision framework. Multivariate analysis using different estimation techniques suggests that parents are significantly more risk-averse when deciding for their child than for themselves. Higher risk aversion is linked to characteristics of parents, not of children. Mood and gender of the deciding parent play a key role. If these results also hold for larger stakes, insights from this study could help to improve decision environments for parents to limit inequality between children due to diverging parental risk preferences.     

Risk taking and information aggregation in groups

We report a controlled laboratory experiment examining risk-taking and information aggregation in groups facing a common risk. The experiment allows us to examine how subjects respond to new information, in the form of both privately observed signals and signals reported from others. We find that a considerable number of subjects exhibit ‘reverse confirmation bias’: they place less weight on information from others that agrees with their private signal and more weight on conflicting information. We also find a striking degree of consensus when subjects make decisions on behalf of the group under a random dictatorship procedure. Reverse confirmation bias and the incidence of consensus are considerably reduced when group members can share signals but not communicate.     

Responsibility and limited liability in decision making for others – An experimental consideration

Agency in financial markets has been claimed to foster excessive risk taking, ultimately leading to bubble formation. The main driving factor appears to be the skewed bonus system for agents who invest other people’s money. The resulting excessive risk taking on behalf of others would imply that such bonus systems crowds out responsible decision making for others in order to serve egoistic self-interest. To test this implication, we conduct laboratory experiments comparing decision making for others with and without such a bonus system. First, we show that, in the absence of bonus systems, decision makers invested significantly less for others than for themselves. Second, we show that limited liable decision makers—participating only in gains but not in losses—invested substantially more for others than for themselves. Hence, our results suggest that indeed limited liability outweighs responsibility.     

Trust and risk revisited

A trustor faces a risky choice in the trust game when he acts upon his belief regarding the chances of betrayal by the trustee. Despite intensive research there is no clear evidence for a link between lottery risk preferences and risk involved in trusting others. We argue that this is due to crucial differences between the risk measurements in the two settings. Trusting is giving up control to a human while lottery risk arises from a mechanistic randomization device. We propose a risky trust game that experimentally measures risk in the same context as the standard trust game, but nevertheless reduces the trust decision to objective risk. Our results show that transfers in the trust game can indeed be explained by individual risk attitudes elicited with the risky trust game, while lottery risk preferences have no explanatory power.     

Decision making for others involving risk: A review and meta-analysis

Are choices for others riskier than choices people make for themselves? This question has been asked by economists, psychologists, and other researchers in the social sciences – which has generated a diversity of research accounts and results. For example, a number of studies have found strong instances of a risky shift in choices for others, while other studies have found no such effect or have found that choices for others instead generate a cautious shift. In a meta-analysis of 128 effects from 71 published and unpublished papers (totaling 14,443 observations), we found a significant though small effect size (d = 0.105) in favor of a risky shift when people choose for others. Moreover, we found considerable variance between studies (Q = 1106.25), suggesting that the net effect is susceptible to moderating factors or study characteristics, which we identify and discuss as well (viz. choice recipient, decision frame, decision reciprocity, theoretical perspective, study design). Thus, we document not only whether decisions for others are riskier, but when (and when such decisions are less risky). We further discuss what is distinctly unique about decision making for others – how such choices are not just different in degree from personal choices but different in kind.     

Time-based versus money-based decision making under risk: An experimental investigation

This paper investigates whether individuals make similar decisions under risk when the outcomes are expressed in time versus monetary units. We address this issue in two studies measuring individual risk preferences and prospect theory parameters (i.e., utility curvature, probability weighting, and loss aversion) for both time and money. In the first (resp., second) study we consider relatively small (resp., large) time and monetary outcomes. We find that individuals hold similar risk preferences for time and money; we also find evidence that “time is money” with regard to the utility curvature for gains, loss aversion, and decision weighting. However, individuals have different valuations of losing time and money. The utility function for small losses of money is more concave and variable than the utility function for small losses of time (Study 1), but the utility function for large losses of time is more concave and variable than that for large losses of money (Study 2). We argue that these results reflect a difference in the perceived slack of the respective resource.     

Risk preferences after a typhoon: An artefactual field experiment with fishers in the Philippines

When are risk preferences stable and when do they change? In general, individual preferences tend to be consistent across time and space but extreme shocks, such as natural disasters, appear to change how people make economic decisions. We conduct an artefactual field experiment with fishers on a remote island in the Philippines and investigate the effect of Typhoon Bopha on risk preferences, along with fairness and time preferences. The typhoon destroyed coral reefs and reduced populations of fish, weakening food security. Comparing individuals from communities that were directly hit by the typhoon with those that were not, we observe evidence that those affected by the typhoon are less risk averse. Stratifying our sample by gender, we observe strong evidence that females affected by the typhoon are more risk-loving than females unaffected by the typhoon. These results are consistent with the hypothesis that extreme negative events cause individuals to be more willing to accept greater risk in return for a larger financial reward.     

Interpersonal risk assessment and social preferences: An experimental study

We investigate interpersonal risk assessment, that is how individuals use either their own or their partner’s monetary resources to offset the risk that affects them or their partner. The observed behavior is in line with the predictions of a simple piecewise linear model of social preferences. Overall, individuals opportunistically draw from others’ resources to offset risk; furthermore, they display higher levels of risk aversion when delegated to choose for others rather than when choosing for themselves. However, different social types differ in the assessment of interpersonal risk. Considering our results, we suggest that studies dealing with interpersonal risk assessment should not only focus on risk preferences, but also take into account social preferences.     

Does patience matter in marriage stability? Some evidence from Italy

Time preferences can affect divorce probability by both affecting the quality of the match and affecting the spouses’ reactions to negative shocks. We analyse the relationship between time preferences and divorce decisions using data from the Italian Survey on Household Income and Wealth, which provides a measure of time preferences based on a hypothetical financial situation in which individuals have to decide how much money to give up in order to receive a certain amount of money immediately rather than in one year’s time. By controlling for a number of individual and family characteristics, we find that impatient individuals are more likely to experience divorce. The effect is robust to different specifications of our model and is not affected by reverse causality problems. We also find that the more risk averse individuals are, the less likely they are to experience divorce.     

The arithmetic of outcome editing in financial and social domains

Outcome editing refers to a set of mental rules that people apply when deciding whether to evaluate multiple outcomes jointly or separately, which subsequently affects choice. In a large-scale online survey (n = 2062) we investigate whether individuals use the same outcome editing rules for financial outcomes (e.g., a lottery win) and social outcomes (e.g., a party with friends). We also test the role of numeric ability in explaining outcome editing. Our results show that people’s preferences for combining or separating events depend on whether those events are in the financial or the social domain. Specifically, individuals were more likely to segregate social outcomes than monetary outcomes, except for when all outcomes were negative. Moreover, numeric ability was associated with preferences for outcome editing in the financial domain but not in the social domain. Our findings extend the understanding of the arithmetic operations underlying outcome editing and suggest that people rely more on calculations when making choices involving multiple financial outcomes and more on feelings when making choices involving social outcomes.     

On confident men and rational women: It’s all on your mind(set)

We tested the hypothesis that inducing the deliberative and the implemental mindset differently affects judgment and decision making. More specifically, we explored mindset effects on decision makers’ confidence ratings, risk preferences, and susceptibility to anchoring effects. As earlier research on mindsets showed that individual differences sometimes moderate mindset effects, we also tested for interaction effects of mindset and gender. For confidence ratings, we found a main effect of mindset and a main effect of gender. For risk preferences and anchoring effects, mindset interacted with gender. When being in an implemental mindset, the judgments of female decision makers came closer to their actual performance compared to being in a deliberative mindset where they were observed as underconfident. Male decision makers were already overconfident in the deliberative mindset and showed even more overconfidence when being in an implemental mindset. Concerning risk attitudes it was found that female decision makers were more prone to choose the less risky, but also less profitable option (in terms of expected payoffs) when they were in the deliberative compared to the implemental mindset. For men the opposite effects were observed. When investigating anchoring effects, male but not female participants’ judgments were influenced by mindset: In an implemental mindset, male participants followed an irrelevant anchor more strongly (i.e., made more anchor-consistent judgments) compared to being in a deliberative mindset.     

Gender differences in risk behaviour in financial decision-making: An experimental analysis

This paper examines whether gender differences in risk propensity and strategy in financial decision-making can be viewed as general traits, or whether they arise because of context factors. It presents the results of two computerised laboratory experiments designed to examine whether differences in risk preference and decision strategies are explained by the framing of tasks and level of task familiarity to subjects. The results show that females are less risk seeking than males irrespective of familiarity and framing, costs or ambiguity. The results also indicate that males and females adopt different strategies in financial decision environments but that these strategies have no significant impact on ability to perform. Because strategies are more easily observed than either risk preference or outcomes in day to day decisions, strategy differences may reinforce stereotypical beliefs that females are less able financial managers.     

Being the best or doing the right thing? An investigation of positional,prosocial and conformist preferences in provision of public goods

Based on a simple theoretical framework, we show that when individuals exhibit positional, prosocial or conformist preferences which are endogenous, the end outcomes in terms of private provision of public goods can differ significantly from traditional neo-classical predictions. Indeed, when a given individual selects a specific subset of preferences according to what others do, he/she will contribute positively to the public good provision. We provide anecdotal evidence to support our theoretical analysis by using data from an Internet survey on a sample of French individuals. Analyses of individual responses confirm our theoretical arguments. For instance, we show that relative concerns matter, that is, for several environmental goods, people might prefer polluting more in absolute terms but less than others in society. Moreover, we also test whether people exhibit a social desirability bias and show that they attribute more (less) positional (prosocial) concerns to others in society.     

The Effects of Individual Risk Propensity on Volunteering

Serving as a volunteer is gratifying and rewarding, but by nature it is also considered a risky decision. Volunteering risk may come from the lack of sufficient training, asymmetric information between volunteers and managers, and the lack of support and protection from nonprofit organizations. Abundant studies discuss volunteering behaviors based on demographics. However, people's decisions are mainly determined by their own preferences rather than demographic differences. Accordingly, this study hypothesizes that individual risk propensity is an important predictor for volunteering behaviors. Using a nationally representative data set, this study finds that risk‐accepting individuals are more likely to volunteer than their risk‐averse peers. Also, the former tend to volunteer more frequently than the latter once they decide to be part of the volunteer labor force. Several managerial implications and volunteer recruitment strategies for nonprofit organizations are discussed.     

Driving Under the Influence of Risky Peers: An Experimental Study of Adolescent Risk Taking

Both passive and active social influences may affect adolescents' dangerous driving. In this study, we used an experimental paradigm to delineate these two influences with actual peers. Adolescents completed a simulated driving task, and we measured risk preferences of each member of the peer group. We used hierarchical linear modeling to partition variance in risky decisions. Adolescents experienced many more crashes when they had “passengers” present who reported a strong preference for risk taking and who actively provided decision‐making guidance. Although youth in the passive peer condition were also influenced by the riskiness of their peers, this relation was less strong relative to the active condition. We discuss the need for interventions focussing on active and passive peer influence.     

Improved decision making about suspected child maltreatment: Results of structuring the decision process

ORBA is a method that aims to improve decision making about suspected child maltreatment in Advice and Reporting Centres of Child Abuse and Neglect (ARCCAN). It structures the process of judging and deciding and makes it explicit by distinguishing separate steps, and by identifying the necessary information to consider and the judgments and decisions to be made in each step. In this study it was investigated whether decision making in ARCANNs has become more systematic and transparent, since the implementation of ORBA. The contents of 100 case records from 2010 were analyzed, after ORBA had been implemented in all agencies, to see to what extent these records contained relevant information, and to what extent process steps and rationales for decisions could be identified. This was compared with the contents of 60 records of three agencies from 2005, before ORBA was implemented. Analyses showed that in 2010 records more often contained relevant information and process steps that ORBA prescribes than in 2005. It was salient however that rationales for judgments and decisions were still often absent in 2010. While after ORBA's introduction the process has clearly become more systematic and more transparent, compared to 2005, more improvements are still called for, specifically in explicitly motivating decisions. Explanations and implications of our results are discussed.     

Time preference before and after a risky activity – A field experiment

This paper examines how a risky activity (e.g., skydiving) affects an individual’s time preference related to financial decisions (i.e., wanting to get paid before or after the activity). We found that prior to a risky activity, inexperienced people were more present-oriented, than they were afterwards. Interestingly, the more experienced individuals were, the less likely they were to demonstrate a preference for the present. Our findings suggest that engaging in activities that individuals might find frightening or thrilling (e.g., skydiving; driving faster than the speed limit; going to a mall) could make less experienced actors shortsighted when processing information (considering the present rather than the future), and lead to shortsighted financial decisions. We suggest that the attempt to regulate concerns associated with activities individuals might find frightening affects unrelated, important daily decisions due to a shift in their time preference.     

Childhood exposure to the Second World War and financial risk taking in adult life

Adverse childhood experiences might have long-lasting effects on decisions under uncertainty in adult life. Merging the European Survey on Health, Ageing and Retirement with data on conflict events during the Second World War, and relying on region-by-cohort variation in war exposure, we show that warfare exposure during childhood is associated with lower financial risk taking in later life. Individuals who experienced war episodes as children hold less – and are less likely to hold – stocks, but are more likely to hold life insurance, compared to non-exposed individuals. Effects are robust to the inclusion of potential mediating factors, and are tested for nonlinearity and heterogeneity. Moreover, we provide evidence of hedonic adaptation to war, as high and low intensity of war exposure have comparable long-term effects. We also document that war exposure in childhood increases sensitivity to financial uncertainty since exposed-to-war individuals are less likely to hold stocks after periods of high volatility. Finally, we shed light on the most likely mechanism in the relationship between war exposure and financial risk taking – i.e., enhanced sensitivity to uncertainty – and we show that preferences, and not beliefs, channel this relationship.