Evgeniya Lukinova1, Mikhail Myagkov1, 2, Tatiana Babkina1
(1. Skolkovo Institute of Science and Technology, Skolkovo, Russia; 2. University of Oregon, United States)

 

Abstract: Misery loves company. In this paper we find that inequity aversion (the change in behavior out of a desire to avoid unequal outcomes) can alter risk attitudes and, in particular, can mitigate loss aversion (the change in behavior and risk attitudes out of desire to avoid losses). Essentially, having someone to take a loss with removes some of the pain of losing. A model of decision making under risk in social context is constructed and tested empirically in laboratory experiments. Social context is understood as the ability to affect, as well as to observe choices and outcomes of others.

 

Key words: inequity aversion; risk attitudes; loss aversion; framing; social context

JEL codes: D81, D63