Experimental & Behavioural Economics Seminar - Daniel Zizzo (University of Queensland)

Title: Relative Risk Taking and Social Curiosity by Jeremy Celse, Alexandros Karakostas and Daniel John Zizzo

Abstract: We present the results of an experiment where decision makers can invest in a profitable opportunity and, before or after having made their investment decision, may have the opportunity to see another agent’s entirely unrelated investment decision, either for free or at a cost. We have a simple control task to measure agents’ baseline risk aversion. Against this control, by having tasks where agents either simply have or not have social information when making their decision to invest, we can test whether and how providing information affects behavior. By having tasks where we change the order of the social information choice, the investment decision and the timing of the social information if obtained, and by having a task where we elicit beliefs about the co-participant’s investment, we are able to understand what drives social information seeking and to test the predictions of models combining risk aversion with either envy or inequality aversion. Investment is positively related to the other participant’s investment and is better predicted by our envy model. Agents virtually always go for social information when this is free. When this is costly, about a third of the agents still does, of which half can be explained by instrumental social curiosity, that is social curiosity aimed to potentially change one’s own investment decision. There is a significant non-instrumental social curiosity motive, particularly when this is costless. Envious agents are more likely to seek social information.