Nav: Home

Social context influences decision-makers' willingness to take risks

July 03, 2019

Do differences in performance have an impact on the appetite for risk-taking in decision-makers? Economists at the University of Göttingen have addressed this question. The result of their study is that people's willingness to take risks increases as soon as they get a lower return than other people with whom they compare themselves. At the same time, decision-makers take lower risks if they get a higher return than their peers. The study was published in the journal Games and Economic Behavior.

Dr Stephan Müller and Professor Holger Rau from the Faculty of Business and Economics at the University of Göttingen investigated the risk preferences of 236 participants in computer laboratory experiments. Risk preferences play an important role in financial and product markets, as they determine the investment behaviour and the associated profits and losses of investors. These actions result in those concerned making different profits on their investments. For example, investors in financial markets achieve higher long-term returns if they take on higher investment risks. Therefore, pronounced risky investment behaviour usually results in an increase in the gap between the levels of investors' income.

"If, for example, a fund manager generates higher profits than his colleague, this can lead to a significant increase in his colleague's willingness to take risks in order to close the existing gap," says Rau. Conversely, decision-makers are less keen on taking risks if they find that their social peer has a lower income. "Interestingly, the results of this change in risk-taking behaviour depend on how strong the test subjects' aversion to inequality is," Müller adds. The results of this study provide valuable insights into the design of employment contracts in order to control the risk-taking behaviour of employees through organisational structures and information policies. Furthermore, the study provides insights into insurance strategies for social projects in order to minimise the existing financial risk for sponsors.
-end-
Original publication: Stephan Müller, Holger A. Rau. Decisions under uncertainty in social contexts. Games and Economic Behavior (2019). https://doi.org/10.1016/j.geb.2019.04.006

Contact:

Dr Stephan Müller
University of Göttingen
Faculty of Business and Economics
Platz der Göttinger Sieben 3, 37073 Göttingen
Tel: +49 (0)551 39-9480
Email: stephan.mueller@wiwi.uni-goettingen.de

Professor Holger Rau
University of Göttingen
Assistant Professor of Experimental Economics
Platz der Göttinger Sieben 3, 37073 Göttingen
Tel: +49 (0)551 39-22281
Email: holger.rau@uni-goettingen.de

University of Göttingen

Related Inequality Articles:

Tackling inequality could save millions of children
An unprecedented study mapping child deaths over almost two decades finds that nearly half of the 5.4 million under-5 deaths in 2017 can be attributed to differences in child death rates within and across countries.
Archaeology -- Social inequality in Bronze Age households
Archaeogenetic analyses provide new insights into social inequality 4,000 years ago: nuclear families lived together with foreign women and individuals from lower social classes in the same household.
High wealth inequality linked with greater support for populist leaders
People who live or think they live in a more economically unequal society may be more supportive of a strong, even autocratic leader, a large-scale international study shows.
Inequality: What we've learned from the 'Robots of the late Neolithic'
Seven thousand years ago, societies across Eurasia began to show signs of lasting divisions between haves and have-nots.
Too much inequality impedes support for public goods
Too much inequality in society can result in a damaging lack of support for public goods and services, which could disadvantage the rich as well as the poor, according to new research from the University of Exeter Business School, the Institute of Science and Technology Austria (IST Austria) and Harvard University.
Growing life expectancy inequality in US cannot be blamed on opioids alone
A new University of Michigan study challenges a popularized view about what's causing the growing gap between the lifespans of more- and less-educated Americans -- finding shortcomings in the widespread narrative that the United States is facing an epidemic of 'despair.'
The Neolithic precedents of gender inequality
Inequality between men and women was not generally consolidated in Iberia during the Neolithic.
Being bullied as a teen is associated with growing up in areas of income inequality
Growing up in areas with income inequality is associated with being bullied, according to a new study, which surveyed approximately 874,000 children in 40 medium and high income countries in Europe, North America and Israel.
Is being bullied as teen associated with growing up in areas of income inequality?
A survey study of about 874,000 adolescents from 40 European and North American countries suggests growing up in areas with income inequality was associated with being bullied after accounting for some other mitigating factors.
Television programming for children reveals systematic gender inequality
Programming children watch on American TV shows systematic gender inequality, according to new research.
More Inequality News and Inequality Current Events

Top Science Podcasts

We have hand picked the top science podcasts of 2019.
Now Playing: TED Radio Hour

Risk
Why do we revere risk-takers, even when their actions terrify us? Why are some better at taking risks than others? This hour, TED speakers explore the alluring, dangerous, and calculated sides of risk. Guests include professional rock climber Alex Honnold, economist Mariana Mazzucato, psychology researcher Kashfia Rahman, structural engineer and bridge designer Ian Firth, and risk intelligence expert Dylan Evans.
Now Playing: Science for the People

#540 Specialize? Or Generalize?
Ever been called a "jack of all trades, master of none"? The world loves to elevate specialists, people who drill deep into a single topic. Those people are great. But there's a place for generalists too, argues David Epstein. Jacks of all trades are often more successful than specialists. And he's got science to back it up. We talk with Epstein about his latest book, "Range: Why Generalists Triumph in a Specialized World".
Now Playing: Radiolab

Dolly Parton's America: Neon Moss
Today on Radiolab, we're bringing you the fourth episode of Jad's special series, Dolly Parton's America. In this episode, Jad goes back up the mountain to visit Dolly's actual Tennessee mountain home, where she tells stories about her first trips out of the holler. Back on the mountaintop, standing under the rain by the Little Pigeon River, the trip triggers memories of Jad's first visit to his father's childhood home, and opens the gateway to dizzying stories of music and migration. Support Radiolab today at Radiolab.org/donate.