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Article Excerpt
I. INTRODUCTION
There is ample empirical evidence that people do not behave rationally when rationality implies maximization of one's own material rewards. To gain flexibility, economists have taken into account nonlinear evaluation of material rewards (e.g., in the familiar form of "utility of money" functions) as well as "social utilities" including other-regarding concerns, like altruism as in Andreoni and Miller (2002), inequality aversion as in Fehr and Schmidt (1999) and Bolton and Ockenfels (2000), or quasi-maximin preferences as in Charness and Rabin (2002). Undeniably, this provides a rich toolbox for "neoclassical repair," which allows aligning rational choice predictions with empirical data on decision behavior. Nonetheless, this toolbox may be a curse (a Pandora's box) rather than a blessing if, by combining the tools arbitrarily, everything can be justified as rational. Some guidance on how risk attitudes, time preferences, and other-regarding concerns are interrelated becomes, therefore, necessary when we want to make sound behavioral predictions.
To derive theoretically the interrelation of risk and time preferences over one's own and others' rewards, one could rely on models of endogenous preference formation in the tradition, for instance, of Guth and Yaari (1992). This would require knowing the habitat in which our basic behavioral disposition to cooperation in risky and dynamic endeavors has evolved. Rather than speculating on how to model this scenario, we prefer to collect first empirical evidence so as to learn the results of such possible preference evolution.
Except for a few attempts, (1) economic theory offers no idea of whether risk aversion goes hand in hand with patience and other-regarding concerns. Yet, such information may be crucial when designing social institutions or deciding on a policy. (2) Consider a cardinal utility function like
(1) [U.sub.i] = [summation over (x[member of]X)]Prob{x}[f.sub.i]([r.sup.0.sub.i](x),[r.sup.1.sub.i](x), [r.sup.0.sub.j](x),[r.sup.1.sub.j](x)),
where X is the set of random events x affecting the monetary rewards [r.sup.1.sub.i] and [r.sup.t.sub.j] of two individuals i and j in two successive periods t = and t = 1. If the decision maker is not spiteful, one can assume that [f.sub.i](*) reacts positively to all its arguments. But how, and to what extent, can each argument be substituted with another? We know that discounting allows to relate [r.sup.1.sub.i](*) to [r.sup.0.sub.i](*), and other-regarding preferences allow to relate [r.sup.t.sub.i](*) to [r.sup.t.sub.j](*). But how does [r.sup.1.sub.j](*) relate to [r.sup.0.sub.i](*)? And if [U.sub.i] is concave in [r.sup.t.sub.i](*), is it also concave in [r.sup.t.sub.j](*)? Is somebody who is rather impatient when her own reward is delayed also rather impatient when others' reward is delayed? Rather than speculating about possible answers, we prefer to be guided by data. Hence, we report on an experiment designed to explore whether and how delaying outcomes, increasing their risk, and affecting in this way also others are interrelated. (3)
All previous empirical studies have explored only the private dimension of the interrelation between risk attitudes and time preferences, that is, when risks and delays affect only one's own rewards. The novelty of our study is that it relies on prospects with social consequences where risk and delay pertain not only to own payoffs (which is common) but also to others' payoffs.
Moreover, other-regarding concerns have mainly been modeled via social utilities depending on the (expected) payoffs of other individuals. To the best of our knowledge, the more subtle interrelation of other-regarding concerns with attitudes to others' risks and delays of rewards has been so far neglected. The Rawlsian philosophical idea according to which "benevolent" individuals should locate themselves in the shoes of others (see Rawls 1971) suggests other-regarding agents to have attitudes toward risks and delays faced by others similar to those they exhibit to risks and delays faced by themselves. (4) Yet, not much has been done to test this conjecture.
The research presented in this article is a follow-up to the study by Brennan et al. (forthcoming), who focus only on the relation between other-regarding concerns and risk preferences when one's own and/or another person's payoff is risky. Their major finding is that behavior is influenced by the riskiness of own payoff but not by that of the other's payoff: risk in what others get seems much less important than own risk, even for those who are other-regarding. Here, we move one step further by taking into account idiosyncratic private and social time preferences, that is, when own and/or another person's rewards are delayed.
In our experiment, each participant is asked to evaluate various allocations, each of which assigns a payoff to herself and to another participant. Payoffs can be immediate or delayed and certain or stochastic. Since each of these four possibilities applies independently to oneself as well as to the other, each participant must evaluate 16 different allocations. As elicitation procedure we use the incentive-compatible random price mechanism introduced by Becker, DeGroot, Marschak (1964). Given that the results of Brennan et al. (forthcoming) reveal a significant difference in individual valuations of risky prospects in the willingness-to-accept (but not in the willingness-to-pay) treatment, we employ only the willingness-to-accept mode. Thus, each participant is endowed with a prospect and asked to state the minimum price at which she is willing to sell it. (5)
In the following Section II, the different prospects and the experimental procedures are described in detail. The results of the experiment are reported in Section III. Section IV concludes.
II. THE EXPERIMENT
Decision Task
To address our research questions, we rely on the random price mechanism and elicit individual valuations of several prospects. Valuations are defined as certainty equivalents in the form of willingness to accept a randomly fixed amount of money to forgo a given prospect. Each prospect allocates payoffs to both the decision maker and another participant....
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