Loss Aversion in Social Image Concerns

Vasilisa Petrishcheva

doi:10.1257/rct.3422-5.0

Abstract

This paper explores whether loss aversion applies to social image concerns. In a simple model, we combine loss aversion in social image concerns and attitudes towards lying. We then test its predictions in a laboratory experiment. Subjects are first ranked publicly in a social image relevant domain, intelligence. This initial rank serves as within-subject reference point. After inducing an exogenous change in subjects' rank across treatments, subjects are offered scope for lying to improve their final rank. We find evidence for loss aversion in social image concerns. Subjects who face a loss in social image lie more than those experiencing gains if they sufficiently care about social image and have a reputation to lose. Individual-level analyses document a discontinuity in lying behavior when moving from rank losses to gains, indicating a kink in the value function for social image.

Highlights

We develop a simple model combining loss aversion in social image concerns and attitudes towards lying to derive testable hypotheses
Comparing average behavior across treatments, we find that subjects who sufficiently care about their social image—as measured by an independent survey instrument—and those with high initial social image who have a reputation to lose behave in line with loss aversion in social image concerns
We will proceed by analyzing how subjects react to losses as opposed to gains in social image, both by exploiting our exogenous treatment variation and by providing descriptive analyses of lying behavior at the individual level

Summary

Introduction

Humans care how they are perceived by their fellow humans and go a great length to build up a positive image of themselves (e.g., Benabou and Tirole (2006); Bursztyn and Jensen (2017); Andreoni and Bernheim (2009); Ariely et al (2009); Soetevent (2011); Ewers and Zimmermann (2015)). These carefully crafted images are at stake in everyday interaction, and reputation can decline rapidly. Casual observations suggest that when social image is at risk of being lost people engage in lies and denial to maintain it in many domains of economic life. While the special role of losses has been extensively documented in the monetary domain (Kahneman and Tversky, 1979; Camerer, 1998; Wakker, 2010; Barberis, 2013), the causal effect of losses on moral behavior deserves a closer look

Results

Discussion

Conclusion