Deciding for Others Reduces Loss Aversion

We study risk taking on behalf of others, both when choices involve losses and when they do not. A large-scale incentivized experiment with subjects randomly drawn from the Danish population is conducted. We find that deciding for others reduces loss aversion. When choosing between risky prospects f...

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Bibliographic Details
Published in:Management science Vol. 62; no. 1; pp. 29 - 36
Main Authors: Andersson, Ola, Holm, Håkan J., Tyran, Jean-Robert, Wengström, Erik
Format: Journal Article
Language:English
Published: Linthicum INFORMS 01.01.2016
Institute for Operations Research and the Management Sciences
Subjects:
Bias
Choices
Decision making
Economics
Economics and Business
Ekonomi och näringsliv
Emotions
experiment
loss aversion
Losses
Management Science and Operations Research
Methods
Nationalekonomi
Prospects
Risk assessment
Risk aversion
Risk behavior
Risk management
Risk taking
Samhällsvetenskap
Social Sciences
Strategy and Management
ISSN:0025-1909, 1526-5501, 1526-5501
Online Access:Get full text
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Summary:We study risk taking on behalf of others, both when choices involve losses and when they do not. A large-scale incentivized experiment with subjects randomly drawn from the Danish population is conducted. We find that deciding for others reduces loss aversion. When choosing between risky prospects for which losses are ruled out by design, subjects make the same choices for themselves as for others. In contrast, when losses are possible, we find that the two types of choices differ. In particular, we find that subjects who make choices for themselves take less risk than those who decide for others when losses loom. This finding is consistent with an interpretation of loss aversion as a bias in decision making driven by emotions and that these emotions are reduced when making decisions for others. This paper was accepted by Uri Gneezy, behavioral economics .
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
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ISSN:0025-1909
1526-5501
1526-5501
DOI:10.1287/mnsc.2014.2085