Social influences on risk attitudes: Applications in economics

Economic research on risk attitudes has traditionally focused on individual decision-making issues, without any consideration for potential social influences on preferences. This has been changing rapidly over the last years, with economists often taking inspiration from earlier psychological research in their increasing consideration of social aspects in decision-making under risk. We provide a broadly conceived overview of the recent literature, defining four different categories of social influences on economic decisions under risk: (1) the observation of other agents’ outcomes; (2) the observation of the decision maker’s outcomes by other agents; (3) the direct effect of the decision maker’s choices on other agents’ outcomes; and (4) the direct dependency of the decision maker’s outcomes on other agents’ choices. While many promising insights have been gained over the last few years, several shortcomings and inconsistencies in our current understanding of social influences on decision-making under risk are pointed out. The overview concludes with a discussion of two real-world applications – agency in financial markets and climate change – that prominently show the importance of furthering our knowledge in this area. In order to achieve such increased knowledge, a much deeper integration of currently dispersed disciplinary knowledge in the social sciences seems crucial.