The Experience of Social Risk
|Experience of adverse events in the past is increasingly understood to matter for future behavior in ways that go beyond informational updating. This paper shows that such experience effects differ depending on whether the adverse event resulted from social or natural causes. We develop a novel experimental design that allows the experimenter to manipulate exclusively the source of risk that creates a subject’s experiential biography and to observe repeat choices at the individual level, all within the same stochastic environment. In this setting, we investigate whether the source, natural or social, that caused an adverse event in a past interaction makes a difference to how decisions about a future interaction are made. We generate our evidence by drawing upon a large sample of the US population (n=4,990) who participate in an online experiment. The evidence shows that experiencing an adverse outcome caused by another human (social risk) reduces future risk-taking, but experiencing the same outcome caused by nature (natural risk) does not, provided exposure to the social risk was intentional. The evidence is consistent with the hypothesis that adverse experiences with a social cause trigger amplified regret, driving subjects towards avoiding social risk in future decisions.