Social Reference Points Shape Decisions under Uncertainty

Kirchler, Benjamin and Kirchler, Erich (2024): Social Reference Points Shape Decisions under Uncertainty.

Abstract

We study the impact of social reference points (SRPs) on decisions under uncertainty. Participants in an online experiment observed the earnings of a matched peer, which was either a high or low amount of money (SRP condition). Subsequently, they made decisions under different degrees of uncertainty (uncertainty condition) with known and uncertain probabilities of outcomes. Risky and ambiguous decisions are operationalized by a modified version of the Bomb Risk Elicitation Task (BRET).We find that SRPs shape decisions under uncertainty: observing a high SRP decreases risk aversion significantly, especially when peer earnings are salient. Moreover, our results suggest that the degree of uncertainty affects the impact of SRPs. SRPs loom larger in decisions under ambiguity compared to risky decisions. Further details of the results suggest that behavior is consistent with social comparison theory. Participants observing a low SRP decrease risks taking to avoid social loss by collecting a bomb and receiving zero earnings, while participants observing a high SRP increase risk taking to decrease the gap to the peer and reduce social losses.

• Item Type: MPRA Paper
• Language: English
• Keywords: Choice under uncertainty, risk taking, ambiguity, social comparison, inequity aversion
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles

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