Skill, effort, luck: Determinants of rank-based endowments and risk-taking in a social setting

Sebastian Krull, Matthias Pelster and Petra Steinorth

Journal of Behavioral and Experimental Finance, 2024, vol. 42, issue C

Abstract: Social comparisons and rank-based endowments impact risk-taking decisions. We provide experimental evidence indicating that rank-based endowments have differential impacts on risk-taking decisions based on the aspect used to rank individuals. We observe the largest rank-based differences when such endowments are determined based on individuals’ effort or skill. Compared to individuals who rank first, individuals who rank last in these settings increase their risk-taking by, on average, 17.55 percentage points (pp). In the case of luck-based endowments, the effect size is significantly smaller (11.34 pp). We conduct an additional treatment where rank and endowment are independent and find that differences in risk-taking are driven mainly by participants’ endowments rather than by the ranking itself.

Keywords: Decision under risk; Risk-taking; Social ranking; Peer effects (search for similar items in EconPapers)
JEL-codes: G11 G40 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:42:y:2024:i:c:s221463502400039x

DOI: 10.1016/j.jbef.2024.100924

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