2024 North American Winter Meeting, San Antonio, Texas: January, 2024

Disentangling Risk and Other-Regarding Preferences

Paul Feldman, kristian Lopez-Vargas

This paper investigates risk and other-regarding preferences within a framework that parallels Epstein-Zin’s. Our model can explain key behavioral patterns in the combined domain and is the first to disentangle elementary attitudes towards risk, altruism, social substitution, ex-ante inequality, and ex-post inequality. We parameterize the model and test its predictions using a laboratory experiment with four decision environments based on convex choice sets. Our findings are consistent with the model, showing that most subjects adjust their risk attitudes due to ex-post inequality concerns and exhibit ex-ante fairness-seeking behavior. Our structural analysis at the individual level allows us to characterize people’s heterogeneity of preferences over five fundamental dimensions.

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