Other People’s Money: The Role of Reciprocity and Social Uncertainty in Decisions for Others

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Many important decisions are taken not by the person who will ultimately gain or lose from the outcome, but on their behalf, by somebody else. We examined economic decision-making about risk and time in situations in which deciders chose for others who also chose for them. We propose that this unique setting, which has not been studied before, elicits perception of reciprocity that prompts a unique bias in preferences. We found that decision-makers are less patient (more discounting), and more risk averse for losses than gains, with other peoples’ money, especially when their choices for others are more uncertain. Those results were derived by exploiting a computational modeling framework that has been shown to account for the underlying psychological and neural decision processes. We propose a novel theoretical mechanism—precautionary preferences under social uncertainty, which explains the findings. Implications for future research and alternative models are also discussed.

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