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Decisions under uncertainty in social contexts

Author

Listed:
  • Müller, Stephan
  • Rau, Holger A.
Abstract
This paper theoretically and experimentally studies decision-making in risky and social environments. We explore the interdependence of individual risk attitudes and social preferences in the form of inequality aversion as two decisive behavioral determinants in such contexts. Our model and the data demonstrate that individual risk aversion is attenuated when lagging behind peers, whereas it is amplified under favorable income inequality. Moreover, people's choices are not only contextdependent, but are sensitive to their degree of inequality aversion. The majority of our experimental findings cannot be rationalized by rank-dependent utility models or cumulative prospect theory. Our results contribute to the basic understanding of the underlying motives of private households' saving decisions, employees' careertrack choices or charitable giving under uncertainty.

Suggested Citation

  • Müller, Stephan & Rau, Holger A., 2017. "Decisions under uncertainty in social contexts," University of Göttingen Working Papers in Economics 290, University of Goettingen, Department of Economics, revised 2017.
    • Handle: RePEc:zbw:cegedp:290
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    References listed on IDEAS

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    More about this item

    Keywords

    choice under uncertainty; social comparison; inequality aversion; risk preferences;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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