| Abstract: |
Previous research has documented a behavioral distinction between "social
risk" and financial risk. For example, individuals tend to demand a premium on
the objective probability of a favorable outcome when that outcome is
determined by a human being instead of a randomizing device (Bohnet, Greig,
Herrmann, and Zeckhauser 2008; Bohnet and Zeckhauser 2004). In this paper we
ask whether social risk is always aversive, answering in the negative and
identifying factors that can eliminate, or even change the sign of, the social
risk premium. Motivated by the stereotype content model from the social
psychology literature, which we argue has straightforward predictions for
situations involving social risk (Fiske, Cuddy, and Glick 2007), we focus on
two factors: "warmth", synonymous with intent, and "competence." We
investigate these factors using a between-subjects experimental design that
implements slight modifications of the binary trust game of Bohnet and
Zeckhauser across treatments. Our results indicate that having risk generated
by another human being does not, on its own, lead to a social risk premium.
Instead, we find that a positive risk premium is demanded when a counter-party
has interests con
icting with one's own (low warmth) and, additionally, is
competent. We find a negative social risk premium -i.e., social risk seeking-
when the counter-party has contrary interests but lacks competence. JEL
Classification: Z1, C91, D81 Keywords: Social Risk, Social Perception,
Intention, Betrayal Aversion, Trust |