Clara Villegas-Palacio

RISK TAKING FOR ONESELF AND OTHERS: A STRUCTURAL MODEL APPROACH

Economic theory makes no predictions about social factors affecting decisions under risk. We examine situations in which a decision maker decides for herself and another person under conditions of payoff equality, and compare them to individual decisions. By estimating a structural model, we find that responsibility leaves utility curvature unaffected, but accentuates the subjective distortion of very small and very large probabilities for both gains and losses. We also find that responsibility reduces loss aversion, but that these results only obtain under some specific definitions of the latter. These results serve to generalize and reconcile some of the still largely contradictory findings in the literature. They also have implications for financial agency, which we discuss.

Cooperation and social classes: evidence from Colombia

We investigate the relationship between social class belonging and contributions to local public goods. By utilizing the social class classifications in Colombia and an experimental design based on the strategy method, we can both study contributions to public goods and classify subjects into contribution types. We find similar contribution levels between high and medium-low social classes and also similar distributions of contributor types. However, low social class members conditionally contribute a significantly higher level than high social class members. This has implications for policymakers, who may need to consider differential policy schemes for locally provided public goods.