Risk aversion and social influence

Abstract Amnon Rapoport made seminal contributions to research on investment decision-making and individual decision-making under risk. To build on his seminal work, this paper explores the impact of social influence on risk-taking. First, to build predictions for experimental testing, we modify a standard expected utility model by introducing a social norm variable. Using a standard 10-decision paired lottery choice task, we report the results from three experiments with different manipulations to test whether social influence information affects subjects’ own lottery choices. In Experiment 1, we find that participants are more likely to switch to choosing the risky option earlier if they are told that a large majority (>75%) of a large group ( N = 100) of others have also chosen the risky option in the past. In Experiment 2, we find there is no effect if the social influence prompt is framed as a small group ( N = 10) or the choice of one ( N = 1) successful lottery participant, but there is an effect when participants are provided information about the consistently risky choices of one ( N = 1) person in the past. In Experiment 3, using an in-person subject pool, we find some mixed effects on risk-taking when the social information is framed as a small group ( N = 10) of peers (other students). Altogether, this paper demonstrates that social influence can impact risk-taking in line with a socially normed expected utility model.