Choosing a gambling partner: testing a model of mutual insurance in the lab
- 187 Downloads
In this study, we investigate how economic agents choose gambling partners and how paired risky choices differ from individual ones. To this aim, we develop a simple model and design a laboratory experiment that allows us to compare individual versus paired decisions across two treatments, where pairs are, respectively, exogenously and endogenously formed. In both treatments, paired subjects decide individually and independently how to allocate their wealth over a portfolio of lotteries and fully commit to share any winnings. The main result from our experiment is that whenever agents are allowed to choose a gambling partner they decide to team up with other agents who display the same degree of risk aversion as themselves. Moreover, paired choices consistently involve higher risk taking than individual choices. This finding is more evident when information on subjects’ risk attitudes is made available and when subjects team up in homogeneous pairs, thereby confirming that subjects successfully exploit the benefits of mutual insurance.
KeywordsRisk taking Mutual insurance Matching Homophily Experiments
JEL ClassificationD81 C92 C78
Unable to display preview. Download preview PDF.
- Attanasio, O., Barr, A., Cardenas, J. C., Genicot, G., & Meghir, C. (2009). Risk pooling, risk preferences, and social networks, mimeo.Google Scholar
- Baker R. J., Laury S. K., Williams A. W. (2008) Comparing small-group and individual behaviour in lottery choice experiments. Southern Economic Journal 75: 367–382Google Scholar
- Bornstein G., Yaniv I. (1998) Individual and group behavior in the ultimatum game: Are groups more rational, players?. Experimental Economics 1: 101–108Google Scholar
- Cox J. C. (2002) Trust, reciprocity, and other-regarding preferences: Groups vs. individuals and males vs. females. In: Zwick R., Rapoport A. (eds) Advances in experimental business research. Kluwer, Dordrecht, pp 331–350Google Scholar
- Giné, X., Jakiela, P., Karlan, D., & Morduch, J. (2006). Microfinance games, mimeo.Google Scholar
- Harrison, G. W., Lau, M. I., Rustrom, E. & Tarazona Gomez, M. (2005). Preferences over social risk. University of Central Florida working paper no. 05-06.Google Scholar
- Keller R.L., Sarin R.K., Sounderpandian J. (2007) An examination of ambiguity aversion: Are two heads better than one?. Judgment and Decision Making 2: 290–397Google Scholar
- Sadoulet, L. (2000). Equilibrium risk-matching in group lending, mimeo.Google Scholar
- Zhang, J., Casari, M. (2010). How groups reach agreements in risky choices: An experiment. Institute for Empirical Research in Economics, University of Zurich, working paper no. 506.Google Scholar