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Effects of choice observability on risk taking: The role of norms

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  • Grimm, Stefan

Abstract

Most economic decisions are embedded in a specific social context. In many such contexts, individual choices are influenced by their observability due to underlying social norms and social image concerns. This study investigates the impact of choices being observed, compared to anonymity of choices, on risk taking in a laboratory experiment. I relate participants’ investments in a risky asset to social norms for risk taking that are elicited in an incentivized procedure. I find that risk taking is not affected by the choice being observed by a matched participant. Nor do investments follow elicited norms for risk taking more closely when observed. This holds when considering males and females separately. However, I provide strong evidence for gender-specific norms in risk taking. While these explain part of the existing gender gap in risk taking, males still “overshoot” by investing more than the norm dictates.

Suggested Citation

  • Grimm, Stefan, 2019. "Effects of choice observability on risk taking: The role of norms," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 80(C), pages 34-46.
    • Handle: RePEc:eee:soceco:v:80:y:2019:i:c:p:34-46
    DOI: 10.1016/j.socec.2019.03.003
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    Cited by:

    1. Schmidt, Ulrich & Friedl, Andreas & Eichenseer, Michael & Lima de Miranda, Katharina, 2021. "Social comparison and gender differences in financial risk taking," Journal of Economic Behavior & Organization, Elsevier, vol. 192(C), pages 58-72.

    More about this item

    Keywords

    Risk taking; Observability; Social image; Norms; Gender;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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