Risk-taking in social settings: Group and peer effects

• Published in: Journal of economic behavior & organization Vol. 92; no. 100; pp. 273 - 283
• Main Authors: Bougheas, Spiros, Nieboer, Jeroen, Sefton, Martin
• Format: Journal Article
• Language: English
• Published: Netherlands Elsevier B.V 01.08.2013; Elsevier Sequoia S.A; North-Holland Pub. Co
• Subjects: Advice; Benchmarks; Choice under risk; Consultation; Content analysis; Decision making units; Experimental economics; Feedback; Group dynamics; Investment; Peer effects; Peer groups; Peer relationships; Peers; Risk sharing; Risk taking; Social environment; Social influence; Studies; Social influence; Experimental economics; Peer effects; Choice under risk; C91; Advice; C92; D80; D71
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2013.06.010

•We examine the role of consultation and group decision making on risk-taking.•We replicate previous experiments showing higher risk-taking in groups relative to isolated individuals.•We find peer effects in consultative groups: the decisions of individuals who consult with one another are correlated.•We find that consultation does not change the average level of risk-taking relative to a treatment where individuals make decisions in isolation.•We conclude that consultation effects alone cannot explain the higher level of risk-taking by groups relative to isolated individuals. We investigate experimentally the effect of consultation (unincentivized advice) on choices under risk in an incentivized investment task. We compare consultation to two benchmark treatments: one with isolated individual choices, and a second with group choice after communication. Our benchmark treatments replicate findings that groups take more risk than individuals in the investment task; content analysis of group discussions reveals that higher risk-taking in groups is positively correlated with mentions of expected value. In our consultation treatments, we find evidence of peer effects: decisions within the peer group are significantly correlated. However, average risk-taking after consultation is not significantly different from isolated individual choices. We also find that risk-taking after consultation is not affected by adding a feedback stage in which subjects see the choices of their consultation peers.