Decisions Under Uncertainty in Social Contexts

55 Pages Posted: 8 Oct 2016 Last revised: 10 Mar 2017

See all articles by Stephan Müller

Stephan Müller

University of Goettingen (Göttingen)

Holger Andreas Rau

University of Goettingen (Göttingen)

Date Written: October 5, 2016

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 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. People’s choices are not only context-dependent, but are sensitive to their degree of inequality aversion. The findings contribute to the understanding of decision-making in environments like trading at stock markets, the saving patterns of households or charitable giving under uncertainty.

Keywords: Choice under Uncertainty, Social Comparison, Inequality Aversion, Risk Preferences

JEL Classification: C91, D03, D63, D81

Suggested Citation

Müller, Stephan and Rau, Holger Andreas, Decisions Under Uncertainty in Social Contexts (October 5, 2016). Available at SSRN: https://ssrn.com/abstract=2848360 or http://dx.doi.org/10.2139/ssrn.2848360

Stephan Müller (Contact Author)

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Holger Andreas Rau

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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