This paper examines how observing other people’s behaviour affects risk taking in repeated decision tasks. In Study 1, 100 participants performed experience-based decision tasks either alone or in pairs, with the two members being exposed to each others’ choices and outcomes.
The tasks involved either equiprobable gains and losses or frequent small gains and rare large losses. The results indicated that, in both risk types, the social exposure increased the proportion of risky selection, but its effect was stronger in the rare-loss condition. In Study 2 the rare-loss task was administered to 32 study participants, with a target individual observing the choices of a paired individual.
The results showed that observing others, rather than being observed, led to the pattern of increased risk taking. The findings of the two studies indicate the importance of distinguishing different types of risky situations and shed light on contradictory findings in the literature.
The effect of the social environment on individual decision making is important because many naturally occurring individual behaviours are conducted in the presence of others. This area of investigation is often studied in the field of social learning (see e.g., Casey & Rozin, 1989; Galef, 1995; 1996; Laland, 1996; Reebs, 2000) which is focused on situations in which individuals have the opportunity to learn from others’ experience.
Studies in this field tend to address situations where actions differ in their objective value but this information is not shared among all individuals. Therefore, observing others’ behaviour adds important information about the “right” action to follow. Hardly any empirical research in this field has focused on the interesting problem where the main difference between alternatives is their associated risk (or variance). Another field of study relevant to the current context is the study of group behavior, in which groups are typically asked to reach a consensus. Studies of group behaviour have addressed the question of social influence on risk taking.
The main finding in this line of research is that groups tend to hold more extreme risk attitudes than those of their individual members. This finding is typically referred to as the group polarization (or groupthink) phenomenon (see Isenberg, 1986 for a comprehensive review). Surprisingly, little research has been devoted to individual risk taking decisions in a social context in which people are able to observe aspects of each other’s behaviour (a situation we refer to as social exposure). The research conducted has yielded mixed results.
Blank (1968) found that in a repeated choice task exposing three individuals to each others’ outcomes facilitated risk taking, compared to choices made alone (see also Teger & Pruitt, 1967). Conversely, Blaskovitch, Veach, and Ginsburg (1973) in an experimental game of blackjack found no effect of social exposure (see also Clark & Willems, 1969). Mixed findings also appear in relevant applied studies. The presence of co-acting individuals was found to increase risky street crossing in a computerized task but only for adolescents and not for adults (Gardner & Steinberg, 2005) yet it facilitated more risky crossing in field studies (Hamed, 2001; Himanen, & Kulmala, 1988).
Still, these mixed findings are usually ignored and this research area is often briefly discussed as an extension of the group polarization phenomenon observed in consensual decisions (e.g., Clark, 1974; Myers, Bach & Schreiber, 1974). The goal of the current study is to clarify the effect of social exposure in two types of risk taking situations involving losses.
One type comprises cases in which gains and losses are equally likely. The other type involves asymmetry in the likelihood and magnitude of gains and losses, particularly that comprising typical small gains and rare large losses. A robust behavioural regularity in experience-based decision making is that, when expected values are similar, people choose according to the alternative that produces the best outcomes most of the time (Estes, 1976a, b; Barron & Erev, 2003; Yechiam & Busemeyer, 2005, 2006).
Accordingly, people are more likely to select risky alternatives producing rare losses (and typical gains) than those producing equiprobable gains and losses, a phenomenon which is indeed widely observed (Barron & Erev, 2003; Hertwig, Barron, Weber, & Erev, 2004). Yet note that the same principle predicts that, when a risky alternative produces rare losses, information concerning others’ behaviour would increase risk taking. In this situation, others’ choice outcomes increase the salience of (or the awareness to) the differences between the typical favourable outcome from the risky alternative and the typically unfavourable outcome from the safe alternative.
For instance, consider a laboratory decision task consisting of a safe alternative S producing $10 in each trial, and a risky alternative R producing $20 in 9 out of 10 selections and –$90 in the remaining selections. The task is repeated, and payoffs are contingent on the option chosen. If an individual has decided to stop selecting R, then he/she is no longer supplied with additional evidence that the obtained outcome from S ($10) is worse than R’s ($20) most of the time.
In a social situation however, others who take risk (and pick R) are naturally continuing to transmit this information to the decision maker, and are thus likely to increase the level of risk taking. Results consistent with this hypothesis were reported in studies that examined the effect of obtaining feedback from unselected choice alternatives (i.e., foregone payoffs) compared to obtaining feedback from selected ones only.
In decision tasks with a risky alternative producing rare negative outcomes (and common favourable outcomes), individuals provided with foregone payoffs are continually presented with the favourable outcomes of this alternative. Indeed, foregone payoffs increase the level of risk taking in such tasks (Yechiam & Busemeyer, 2005; 2006; see also Ert & Erev, 2007).
However, this effect has not been observed for risky alternatives producing equally likely gains and losses, such as betting on a color in a roulette wheel (Grosskopf, Erev, & Yechiam, 2006; Haruvy & Erev, 2002; see also Charness & Grosskopf, 2004). The latter pattern is explained by the fact that, when a risky alternative is equally likely to produce gains and losses, then its outcomes are not better most of the time, and adding foregone payoffs does not change that fact.
Our main argument is that similarly to the effect of foregone payoffs, being exposed to others’ choices and outcomes in a decision task would increase risk taking in tasks involving rare losses. Two controlled laboratory studies were conducted to examine this prediction. Study 1 evaluated the effect of mutual exposure to other people’s choices in decision tasks involving rare or equiprobable losses.
The results showed that, while social exposure increased risk taking in both decision tasks, it had a larger effect in the rare loss condition. Study 2 investigated the processes that lead to risk taking in the social context, showing that observing others, rather than being observed, facilitates the effect observed in Study 1.