An endowment effect for risk levels: Evidence from a Ugandan lab

Clist, Paul, Verschoor, Arjan and D'Exelle, Ben (2021) An endowment effect for risk levels: Evidence from a Ugandan lab. Journal of Economic Behavior & Organization, 182. pp. 297-310. ISSN 0167-2681

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Abstract

Risky choices often have a natural starting-point. For example, insurance-type decisions concern reducing risk while investment-type decisions concern increasing it. A recent reference-dependent utility model predicts such references influence behaviour. Stochastic references act as endowments, with riskier references leading to riskier choices. We test this prediction in an identical choice set using a between-subject design in rural Uganda. Subjects are subtly assigned to one of three reference lotteries. On average, those with riskier endowments risk half a standard deviation more coins. We also consider the effect of introducing a new stochastic reference. In a within-subject second round, we test whether a social signal acts as a competing reference. In our experiment, information on peers’ choices is a stronger pull than the initial treatment effect. On average, subjects converge to the social signal by 0.37 for each unit of difference. Previous research focuses on the absence or presence of risk, allowing either the reference or prospect to be non-degenerate. Our results allow both to contain an element of risk, and show that the endowment effect can operate on the level of risk: risky choice is influenced by the riskiness of the reference.

Item Type: Article
Faculty \ School: Faculty of Social Sciences > School of International Development
Faculty of Social Sciences > School of Economics
Faculty of Science > Tyndall Centre for Climatic Change
Depositing User: LivePure Connector
Date Deposited: 16 Dec 2020 00:53
Last Modified: 16 Apr 2021 23:56
URI: https://ueaeprints.uea.ac.uk/id/eprint/77976
DOI: 10.1016/j.jebo.2020.12.013

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