An endowment effect for risk levels: Evidence from a Ugandan lab
D’Exelle, Ben and
Authors registered in the RePEc Author Service: Ben D'Exelle
Journal of Economic Behavior & Organization, 2021, vol. 182, issue C, 297-310
Risky choices often have a natural starting-point. For example, insurance-type decisions concern reducing risk while investment-type decisions concern increasing it. A recent reference-dependent utility model predicts such references influence behaviour. Stochastic references act as endowments, with riskier references leading to riskier choices. We test this prediction in an identical choice set using a between-subject design in rural Uganda. Subjects are subtly assigned to one of three reference lotteries. On average, those with riskier endowments risk half a standard deviation more coins. We also consider the effect of introducing a new stochastic reference. In a within-subject second round, we test whether a social signal acts as a competing reference. In our experiment, information on peers’ choices is a stronger pull than the initial treatment effect. On average, subjects converge to the social signal by 0.37 for each unit of difference. Previous research focuses on the absence or presence of risk, allowing either the reference or prospect to be non-degenerate. Our results allow both to contain an element of risk, and show that the endowment effect can operate on the level of risk: risky choice is influenced by the riskiness of the reference.
Keywords: Risk aversion; Investment decisions; Insurance decisions; Developing countries; Reference-dependent preferences; Stochastic referents (search for similar items in EconPapers)
JEL-codes: C91 D01 D81 O1 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:182:y:2021:i:c:p:297-310
Access Statistics for this article
Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.
More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().