Relative risk taking and social curiosity

Abstract

We present an experiment providing (a) a horse race among different models combining social preferences and risk preferences, and (b) a test of whether agents are socially curious, that is wanting to know about the risk taking of others and the outcomes of their risk taking. We distinguish outcome driven models (that is, models where agents care about the earning outcomes for themselves and others) from action driven models (that is, models where agents care about one's risk taking actions relative to the actions of others). We embed outcome and action driven competitive preferences, inequality aversion, conformism, and social loss aversion, within a single theoretical framework generalized from Bolton and Ockenfels (2000). We find that competitive preferences models best explain investment decisions in our setting, with almost 50% of subjects influenced both by their co-participants’ actions and outcomes. Social information is sought 90% of the times when it is free. When it is costly, it is sought 30% of the times if the information is instrumental for one's own investment decision and 10% to 20% of the times if it is not. Competitive preferences can help explain social curiosity.