Expectations, Preferences, and Social Risk Taking

Many important economic decisions incorporate social risk, i.e. risk or uncertainty which do not arise from nature (e.g. natural disasters or health risks) but from the action of another human being. Social risk is especially ubiquitous in strategic situations, where one’s outcome does not only depend on one’s own action but on the action of another person. The present doctoral thesis studies the interplay between expectations, social preferences, and social risk taking in two particular situations.The thesis contains four essays. The first essay, which is entitled “The Twofold Beauty Premium: Preference-Based and Beliefs-Based Behavior in an Anti-Coordination Game”, reveals three results. First, individuals taking part in a two-player market entry game form beliefs about their opponents’ behavior based on stereotypes, which relate people’s physical appearance to their willingness to take social risk. Physically attractive people are expected to be more willing to take risk. Second, people seem to refrain from market entry, because they have a preference for good-looking counterparts. Third, both beliefs-based and preference-based behavior is moderated by people’s gender.Analogously, the implications of the second essay entitled “The Higher Your Expectations, the Less Your Trust: Avoiding the Experience of Unfulfilled Expectations” are threefold. Studying a binary-choice trust game, my co-authors and I find evidence for a consensus effect, which generally implies that people tend to extrapolate from their preferences to the believed preferences of others. In line with this concept, trustors form beliefs about trustees’ behavior based on their own social preferences. Moreover, trustors being optimistic with respect to their counterparts’ trustworthiness lower their willingness to trust in order to avoid their optimistic expectations being disconfirmed.In the third essay, which is entitled “Breaking the Rules: Anticipation of Norm Violation in a Binary-Choice Trust Game”, my co-authors and I investigate the role of moral expectations in a binary-choice game. More precisely, we consider the obligations which trustors assign to the trustee role. Our study reveals that trustors who consider trustees to be obligated to act trustworthily are ceteris paribus less willing to trust. The underlying reason may be that trustors attempt to hinder trustees from violating their moral obligation to reward trust.In the fourth essay, entitled “Once Bitten, Twice Shy: Trust, Trustworthiness, and the Hot-Cold Empathy Gap”, my co-author and I study a repeated binary-choice trust game, in which players take the trustor and the trustee role in a row. We find that people’s beliefs about others’ trustworthiness (i.e. whether others reward or betray trust) moderate the intrapersonal correlation between trust and trustworthiness. If subjects hold optimistic beliefs, their willingness to trust is positively related to their willingness to reward. We find a contrary relationship for pessimistic subjects