Defaults, Normative Anchors and the Occurrence of Risky and Cautious Shifts

Category: Applied Microeconomics and Organization Seminar
When: 09 December 2015
, 17:15
 - 19:00
Where: RuW, 4.201

A choice shift occurs when individuals advocate a risky (safe) decision when acting as part of a group even though they would prefer a safe (risky) alternative decision when acting as individuals. In this paper, we investigate when and why choice shifts occur. We consider two potential drivers of choice shifts. One possibility is that defaults are responsible for choice shifts. Eliaz et al. (2006) clarify the similarity between choice shifts in groups and Allais-paradox type of behavior, and they show how rank-dependent utility may cause choice shifts. The other possibility is that choice shifts are driven by normative anchors. In that case, individuals may shift in the direction of the risk position held by the majority of their group. Our experimental evidence largely supports the explanation based on normative anchors, and it emphasizes the importance of a decision having shared consequences.