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Theory and Decision

, Volume 72, Issue 4, pp 537–571 | Cite as

Choosing a gambling partner: testing a model of mutual insurance in the lab

  • Daniela Di Cagno
  • Emanuela Sciubba
  • Marco Spallone
Article

Abstract

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.

Keywords

Risk taking Mutual insurance Matching Homophily Experiments 

JEL Classification

D81 C92 C78 

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Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  • Daniela Di Cagno
    • 1
  • Emanuela Sciubba
    • 2
  • Marco Spallone
    • 3
  1. 1.LUISS Guido CarliRomeItaly
  2. 2.Department of Economics Mathematics and StatisticsBirkbeck CollegeLondonUK
  3. 3.U. G. D’Annunzio Chieti and PescaraPescaraItaly

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