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For whom does social comparison induce risk-taking?

Author

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  • Oege Dijk

    (Radboud University Nijmegen)

Abstract

A ‘bonus culture’ among financial traders has been blamed for the excessive risk-taking in the run-up to the latest financial crisis. I show that when individuals are more social gain seeking than social loss averse (i.e. gloating is stronger than envy), social comparison predicts more risk-taking as well as a preference for negatively correlated gambles. Testing these two joint propositions in a laboratory experiment, I find that preference for positively or negatively correlated outcomes is highly correlated with risk-taking in a social risky investment task. While only a third of subjects prefer negatively correlated outcomes in a peer comparison setting, in line with relatively stronger social gain seeking, those subjects invest on average 50 % more in a risky gamble in their peer comparison setting than a reference group that made the same decision in an isolated individual setting. Subjects with a preference for positively correlated outcomes, in line with relatively stronger social loss aversion, do not show a higher propensity to invest in a risky gamble compared to the individual reference group.

Suggested Citation

  • Oege Dijk, 2017. "For whom does social comparison induce risk-taking?," Theory and Decision, Springer, vol. 82(4), pages 519-541, April.
    • Handle: RePEc:kap:theord:v:82:y:2017:i:4:d:10.1007_s11238-016-9578-4
    DOI: 10.1007/s11238-016-9578-4
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    Cited by:

    1. Dietmar Fehr & Yannick Reichlin, 2021. "Status, Control Beliefs, and Risk-Taking," CESifo Working Paper Series 9253, CESifo.

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    More about this item

    Keywords

    Social comparison; Risky choice; Experiments;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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