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Portrait of Erik Wengström. Photo.

Erik Wengström

Director of Doctoral studies, Department of Economics, Professor

Portrait of Erik Wengström. Photo.

Deciding for Others Reduces Loss Aversion

Author

  • Ola Andersson
  • Jerker Holm
  • Jean-Robert Tyran
  • Erik Wengström

Summary, in English

We study risk taking on behalf of others, both when choices involve losses and when they do not. A large-scale incentivized experiment with subjects randomly drawn from the Danish population is conducted. We find that deciding for others reduces loss aversion. When choosing between risky prospects for which losses are ruled out by design, subjects make the same choices for themselves as for others. In contrast, when losses are possible, we find that the two types of choices differ. In particular, we find that subjects who make choices for themselves take less risk than those who decide for others when losses loom. This finding is consistent with an interpretation of loss aversion as a bias in decision making driven by emotions and that these emotions are reduced when making decisions for others.

Department/s

  • Department of Economics

Publishing year

2016

Language

English

Pages

29-36

Publication/Series

Management Science

Volume

62

Issue

1

Document type

Journal article

Publisher

INFORMS Institute for Operations Research and the Management Sciences

Topic

  • Economics

Keywords

  • risk taking
  • loss aversion
  • experiment

Status

Published

ISBN/ISSN/Other

  • ISSN: 0025-1909