Trust between individuals and groups: Groups are less trusting than individuals but just as trustworthy

We compare the behavior of groups and individuals in a two-person trust game. The first mover in this game, the sender, receives an endowment and can send any part of it to the responder; the amount sent is tripled, and the responder can then return to the sender any portion of the tripled sum. In a 2 × 2 design, the players in the roles of sender and responder are either individuals or groups of three players (who conduct face-to-face discussions to decide on a collective group strategy). We find that groups in the role of sender send smaller amounts than individuals, and expect lower returns. In particular, groups send nothing more often than individuals do (and are even more likely to do so when the responder is another group). Groups and individuals in the role of responder return on average the same fraction of the amount sent. Hence, we conclude that groups are less trusting than individuals, but just as trustworthy.     

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.     

Subjective measures of household preferences and financial decisions

In intertemporal models of household consumption or portfolio choice, household behaviour depends on, for example, the household's rate of time preference, the rate of risk aversion, and the household's information set. In this paper we use a survey of Dutch households which contains direct subjective information on risk aversion and time preference and on interest in financial matters. We first describe these data and analyze how they relate to household characteristics and household income. We then investigate whether these variables are related to households' financial decisions on home ownership, mortgages and ownership of risky assets. Our results are broadly in accordance with economic theory.     

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.     

Shared losses reduce sensitivity to risk: A laboratory study of moral hazard

Moral hazards are said to occur when one party makes decisions that have potential negative consequences that will either be fully or partially experienced by another party. The present experiment sought to explore moral hazard in a laboratory setting. Participants made choices between certain and risky rewards. On some trials, participants bore the full brunt of a loss if the risky reward was chosen and lost. On other trials, participants believed losses would be shared with another party creating the opportunity for moral hazard. Our design allowed us to measure whether the presence of a moral hazard influenced participants’ choice behavior and to quantify the magnitude of this influence. Results suggested that participants were more tolerant of risk when they believed losses would be shared with another party compared to choices when all of the loss would be experienced personally. More importantly, concern for the third party losses appeared to exert no influence on choices whatsoever. These results were found when the third party was anonymous (Experiment 1) but also when they met the third party face-to-face (Experiment 2). The relationship between the current results and real-life moral hazards, as well as possible future research directions, is discussed.     

Equity versus equality: Spectators,stakeholders and groups

Justice figures prominently in a wide variety of economically important contexts that involve both third parties and involved parties, e.g., in environmental regulation, international trade, and legal proceedings. The primary rivals for fairness rules over the distribution of a fixed good are equality and equity (i.e., allocations that are proportional to contributions). This paper reports the results of a dictator experiment in relation to a large variety of factors that might affect these rules, including performance on a real effort task, in-group identity, subject pools, allocative power, cultural orientation and demographic variables. We find impersonal third parties (i.e., Spectators) allocating anonymously for others favor equity. Subjects who share personal stakes anonymously with recipients (i.e., Stakeholders) allocate amounts between equity and equality. Stakeholders, who meet and communicate with their recipients (i.e., In-groups), allocate even more equally than anonymous stakeholders to their own recipients and behave more selfishly toward other subjects (i.e., Out-groups). These findings are robust with respect to subject pool, a measure of culture, and demographic variables, which seldom matter. We conclude that there is considerable agreement about these fairness rules, when parties are well informed, although there remain important differences across subject pools in the willingness to act on those rules.     

Risk behavior in decision-making in a multi-person-setting

When people have to make a choice in an individual setting between a known-risk option and an untested situation of uncertainty, the majority prefers the known risk over the uncertainty of the alternative. The confrontation with an unfamiliar situation in an environment including other participants allows for new mechanisms in risk-perception and risk-evaluation. People tend to become other-directed and use the behavior and consequences of actions of other people in the environment to assess risk. Our investigations show that warning signals observable in the behavior of other participants in the setting reinforce people's preference for known risks over uncertainty.     

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.     

Tracing risky decisions for oneself and others: The role of intuition and deliberation

This study contributes to the understanding of how individuals make choices for themselves and on behalf of others in a risky environment. In a laboratory eye-tracking experiment, we investigate whether risk preferences, decision error, and information processing differ between decisions made for oneself and on behalf of others. While we find no differences in risk preferences when deciding for oneself or for someone else, individuals have a greater decision error when deciding for others. Process data partly explains these differences. Individuals spend less time, have less fixations, and inspect less information when deciding for others. We detect similar processing patterns when comparing intuitive and deliberative decision making. We argue that the processing of decisions for oneself is more effortful and involves more extensive deliberation which, in turn, is related to less decision errors.     

The hidden cost of humanization: Individuating information reduces prosocial behavior toward in-group members

This paper reports robust experimental evidence that humanization—in the form of individuating information about another’s personal preferences—leads to decreased prosocial behavior toward in-group members. Previous research shows that individuating information increases prosocial behavior toward dehumanized out-group members. Its consequences for in-group members, however, are less well understood. Using methods from social psychology and behavioral economics, four experiments show that individuating information decreases pro-social behavior toward in-group members in a variety of settings (charitable giving, altruistic punishment, and trust games). Moreover, this effect results from decreased reliance on group membership labels, and not from other potential explanations like the induction of new group identities. Understanding these effects sheds light on the motives behind intergroup conflict, which may not result from a difference in social perception (i.e., humanized in-groups and dehumanized out-groups), but rather from biases associated with group membership (i.e., in-group favoritism and out-group discrimination) that are eliminated by individuating information. Together, these results indicate that humanization carries a hidden cost for in-group members by disrupting group identities that would otherwise make them targets of altruistic actions.     

Fairness judgments in household decision making

The behavioral economic study of fairness was applied to household decision making. A sample of household partners judged the fairness of a number of hypothetical decisions of a household partner, varying in the context of the decision. Decisions made by the partner to make a large personal expenditure or to reduce time spent on household chores were considered by the subjects as more fair if the outcome was framed as a forgone gain then if it was framed as a straight loss. Partners’ decisions to reduce household chores were also considered as more fair in the case of overtime work than when the partner received a salary increase or windfall income. We conclude that asymmetric valuation of losses and forgone gains, and (behavioral) costs as compared with income increase of the partner, influenced the fairness judgments concerning the partner’s behavior.     

Looking Beyond Retirement: Patterns and Predictors of Formal End-of-Life Planning Among Retirement Age Individuals

This study uses the 2004 wave of the Wisconsin Longitudinal Study to examine the patterns and predictors of formal End-of-Life (EOL) planning strategies among retirement age individuals and whether EOL health and financial planning are highly correlated planning behaviors. Using logistic regressions and multinomial logistic regressions, findings show that EOL health plans appear to be done in combination with financial plans. Females, higher educated persons, and those with higher net worth are more likely to have integrated EOL plans containing both EOL health and EOL financial plans. It is suggested that policy makers, health and financial professionals, and educators concerned about the consequences of the absence of EOL health plans should facilitate the joint planning with finances, especially among those at higher risk of not having such plans (e.g., males, less educated persons, and those who have little net worth).

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.     

On complexity and lotteries' evaluation – three experimental observations

We present experimental evidence suggesting that human subjects penalize lotteries for complexity. Our results contradict the assumption that human agents follow the discounted expected utility model in multi-period choice with uncertainty. In particular, we show that the buying price offered for an inferior, simple multi-period lottery may sometimes significantly exceed the buying price offered for a better, yet more complicated, alternative, when the lotteries are sold to a group of subjects in a first-price auction. We discuss the possibility to modify the existing models of choice to this “complexity effect”.     

Where are the motives? A problem with evidence in the work of Richard Thaler

In this journal (Mackenzie, 1997. Economic Psychology 18(1), 123–135), Mackenzie argues that there is a problem with Thaler's work: in failing to provide evidence about motives, Thaler's claims are vulnerable. In this comment, I present a different view. Thaler merely pinpoints some stylized facts, such as the endowment effect. Models of economic behaviour should be able to account for these. Mackenzie's discussion of the wine owner anecdote gives ad hoc reasons for apparently irrational behaviour. Thaler's work focuses on systematic effects, which is a much more fruitful approach. Mackenzie fails to do justice to the work that has been done to document the endowment effect.     

Risk,interest groups and the definition of crisis: the case of volcanic ash

This paper considers a key aspect of the ‘risk society’ thesis: the belief that we should be able to manage risks and control the world around us. In particular it focuses on the interface between risk and risk events as socially constructed and the insights that ‘critical situations’ give us into ‘the routine and mundane’, the otherwise taken for granted assumptions underlying risk regulation. It does this with reference to the events precipitated by the April 2010 volcanic eruption in the Eyjafjallajökull area of Iceland. The resulting cloud of volcanic ash spread across Europe and much of Europe's airspace was closed to civil aviation for six days, with far reaching consequences including huge financial losses for airlines. The social processes of defining and reacting to risk and crisis both reveal and generate dilemmas and challenges in regulation. This paper examines the role of different interest groups in defining risk expectations and thereby redefining the ash crisis as a regulatory crisis.     

Demonstrability,difficulty and persuasion: An experimental study of advice taking

Self-interested paid advisors should try to sell their solutions no matter how they came about. However, we present evidence that advisor persuasiveness depends on two dimensions of their prior problem solving: solution difficulty and demonstrability. We report a laboratory experiment with repeated advisor-client interactions where both these dimensions are independently varied. Persuasion rises in solution demonstrability and falls in difficulty. The reason is non-optimising behaviour: Advisors lacking in confidence fail to conceal difficult problem solving and those receiving their advice baulk when the proposed solution lacks objective success criteria irrespective of its promise. Our findings suggest differential prospects for persuasion and selling of different kinds of products, services and ideas.     

A Historical,Interdisciplinary Analysis of the Animal and Human Social Ecosystem

No abstract available for this article.     

Understanding the WTA–WTP gap: Attitudes, feelings, uncertainty and personality

We present an experiment designed to study the psychological basis for the willingness to accept (WTA)–willingness to pay (WTP) gap. Specifically, we conduct a standard WTA–WTP economic experiment to replicate the gap and include in it five additional instruments to try to follow the psychological processes producing it. These instruments are designed to measure five psychological constructs we consider especially relevant: (1) attitudes, (2) feelings, (3) familiarity with the target good, (4) risk attitudes, and (5) personality. Our results provide important new insights into the psychological foundations of the WTA–WTP disparity, which can be used to organize some major previous results and cast serious doubts on the claim that the gap might be just a consequence of inappropriate experimental practice.