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Peer Effects in Risk Taking

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  • Amrei M. Lahno
  • Marta Serra-Garcia

Abstract

We examine peer effects in risk taking with complete information and compare explanations for peer effects based on relative payoff concerns to explanations that allow peer choices to matter. We vary experimentally whether individuals can condition a simple lottery choice on the lottery choice, lottery allocation or an unrelated act of a peer. We find that peer effects increase significantly, almost double, when peers make choices, relative to when they are allocated a lottery. In contrast, peer effects are equally strong when individuals can condition on the lottery allocation or unrelated act of the peer. Further, imitation is the most frequent form of peer effect. Hence, peer effects in our environment are explained by a combination of relative payoff concerns and preferences that depend on peer choices. Comparative statics analyses and structural estimation results suggest that a norm to conform to the peer may explain why peer choices matter.

Suggested Citation

  • Amrei M. Lahno & Marta Serra-Garcia, 2012. "Peer Effects in Risk Taking," CESifo Working Paper Series 4057, CESifo.
    • Handle: RePEc:ces:ceswps:_4057
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    2. Bolton, Gary E. & Ockenfels, Axel & Stauf, Julia, 2015. "Social responsibility promotes conservative risk behavior," European Economic Review, Elsevier, vol. 74(C), pages 109-127.
    3. Kocher, Martin G. & Krawczyk, Michal & van Winden, Frans, 2014. "‘Let me dream on!’ Anticipatory emotions and preference for timing in lotteries," Journal of Economic Behavior & Organization, Elsevier, vol. 98(C), pages 29-40.
    4. Stefan Grimm & Martin G. Kocher & Michal Krawczyk & Fabrice Lec, 2021. "Sharing or gambling? On risk attitudes in social contexts," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1075-1104, December.
    5. Schmidt, Ulrich & Neyse, Levent & Aleknonyte, Milda, 2015. "Income inequality and risk taking," Kiel Working Papers 2000, Kiel Institute for the World Economy (IfW Kiel).
    6. Astrid Gamba & Elena Manzoni & Luca Stanca, 2017. "Social comparison and risk taking behavior," Theory and Decision, Springer, vol. 82(2), pages 221-248, February.
    7. Bougheas, Spiros & Nieboer, Jeroen & Sefton, Martin, 2013. "Risk-taking in social settings: Group and peer effects," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 273-283.
    8. Delfino, Alexia & Marengo, Luigi & Ploner, Matteo, 2016. "I did it your way. An experimental investigation of peer effects in investment choices," Journal of Economic Psychology, Elsevier, vol. 54(C), pages 113-123.
    9. Baghestanian, Sascha & Gortner, Paul J. & van der Weele, Joël J., 2015. "Peer effects and risk sharing in experimental asset markets," SAFE Working Paper Series 67, Leibniz Institute for Financial Research SAFE, revised 2015.
    10. Schmidt, Ulrich & Friedl, Andreas & Lima de Miranda, Katharina, 2015. "Social comparison and gender differences in risk taking," Kiel Working Papers 2011, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    peer effects; decision making under risk; social comparison; laboratory experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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