Abstract
Risk management is a problem humans have faced throughout history and across societies. One way to manage risk is to transfer it to other parties through formal and informal insurance systems. One informal method of self-insurance is limited risk pooling, where individuals can ask for help only when in need. Models suggest that need-based transfer systems may require coordination and common knowledge to be effective. To explore the impact of common knowledge on social coordination and risk pooling in volatile environments, we designed and ran a Risk Pooling Game. We compared participants who played the game with no advance priming or framing to participants who read one of two texts describing real-world systems of risk pooling. Players in the primed games engaged in more repetitive asking and repetitive giving than those in the control games. Players in the primed games also gave more in response to requests and were more likely to respond positively to requests than players in the control games. In addition, players in the primed games were more tolerant of wide differences between what the two players gave and received. These results suggest that the priming texts led players to pay less attention to debt and repayment and more attention to the survival of the other player, and thus to more risk pooling. These results are consistent with findings from fieldwork in small-scale societies that suggest that humans use need-based transfer systems to pool risk when environmental volatility leads to needs with unpredictable timing. Models suggest that the need-based transfer strategy observed in this experiment can outperform debt-based strategies. The results of the present study suggest that the suite of behaviors associated with need-based transfers is an easily triggered part of the human behavioral repertoire.
Highlights
Human responses to uncertainty fall into four main risk management strategies [1]
Common knowledge promotes risk pooling in an experimental economic game accumulation and storage of resources, whether by individuals or groups, and institutional self-insurance
To assess whether the players in the primed conditions followed a strategy more in line with need-based transfers than with debt-based transfers, we examined seven variables generated by the Risk Pooling Game: 1. Repetitive Giving: The number of periods in which the first player gave to the second player even though the second player had not yet repaid a previous gift
Summary
Human responses to uncertainty fall into four main risk management strategies [1]. Risk retention consists of accepting risk and absorbing any resulting losses. Agents in the model used one of three different decision-making rules for livestock transfers to one another: (1) no transfers at all, (2) transfers following the rules of osotua relationships ( “needbased transfers”), and (3) transfers following the rules of esile ( “debt-based transfers”) This model showed that, when environmental conditions are volatile, need-based transfers lead to more risk pooling and higher survivorship than either no transfers or debt-based transfers. In the Risk-Pooling Game, in contrast, players make many decisions (whether to harvest, whether to ask for help, whether to give help, etc.) in period after period and round after round of play, which in our view greatly reduces the likelihood that reading a text, regardless of its content, would influence their game play. As we were careful to randomly assign participants to different treatments in the experiment, differences in behavior between treatments can be reliably considered to be due to the treatments and not due to selection bias into specific treatments
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