We explore the influence of social comparison on risky choices in an experimental setup. Participants make choices between lotteries that determine their payoff and that of their social referent. To provide participants with a social referent the experiment starts with a two-person Bertrand game. This game allows for cooperative behavior and deceit, thereby allowing for diverse types of interaction. Social ties between participants are measured using a circle-test. In the main part of the experiment, participants make a series of choices between lotteries with only positive outcomes.
However, in some of these lotteries the decision maker will always have a lower payoff than her social referent (loss context), while in others her payoff is always higher (gain context). Photos of both participants are displayed on the computer screen in order to make the social reference more salient. If a social reference point acts as a prospect theory type reference point, decision makers will be risk seeking (averse) when they will earn less (more) than their social referent. We find an effect of the social reference point on the risky choices but this effect is in the opposite direction.
Joint work with Joep Sonnemans (University of Amsterdam).