Risk preferences in self–other decisions: The effect of payoff allocation framing

Abstract

AbstractThe effect of framing is well established: Decision makers' preferences are influenced by how outcomes or attributes are phrased. In the financial domain, individuals often make decisions for themselves and for others. Therefore, decisions in a two‐person context with the outcome equally allocated can be framed in two ways defined as the allocation framing: (1) self‐allocation frame: making a decision for oneself, with half the payoffs shared by another person; and (2) other‐allocation frame: making a decision for the other person and sharing half the payoffs. The results of six studies provided consistent evidence that people are more risk seeking in the self‐allocation frame than in the other‐allocation frame, and the effect was only noteworthy in the gain domain—not the loss domain. Our findings on allocation framing provide a meaningful contribution to studies of self–other decision making.