Risk Taking on Behalf of Others: The Role of Social Distance

Individuals take decisions on behalf of others in many different contexts. In this paper, we focus on lotteries with negative expected value and study if (and how) risky choices made on behalf of another person differ i) compared to decisions which do not affect anyone else, and ii) depending on the social distance between who makes the decision and who is affected by it. Our results show that social distance (i.e., whether the person affected by one's decision is an unknown stranger or a friend) is an important determinant when people decide on behalf of others. Moreover, when deciding on behalf of a friend rather than only for themselves or a stranger, average individual behavior is closer to expected value maximization, exhibiting less risk taking. These findings suggest that responsibility for others' outcome and empathy gap affect the decision making process, particularly when the social distance is shortened. The results are robust to different feedback frequencies. Controlling for order effects shows that experiencing a decrease in social distance is crucial in activating this mechanism.JRC.B.1-Finance and Econom