Higher - order Risk Preferences in Social Settings

We study higher-order risk preferences, i.e. prudence and temperance, next to risk aversion in social settings. Previous experimental studies have shown that higherorder risk preferences aff ect the choices of individuals deciding privately on lotteries that only aff ect their own pay-off . Yet, most risky and fi nancially relevant decisions in the fi eld are made in the social settings of households or organizations. We aim to narrow the gap between laboratory and fi eld evidence by creating a more realistic decision making environment in the laboratory that allows us to identify the infl uence of diff erent social settings under controlled conditions. We elicit higher-order risk preferences of individuals and systematically vary how an individual’s decision is made (alone or while communicating with a partner) and who is aff ected by the decision (only the individual or the partner as well). In doing so, we can isolate the eff ects of other-regarding concerns and communication on choices. We observe that individuals become more risk-averse when the partner is able to communicate with the decision maker. However, we do not observe an infl uence of social settings on prudence and temperance. Our results reveal that the majority of choices are risk-averse, prudent, and temperate across social settings. JEL Classifi cation: C91, C92, D70, D81