Gains, losses, and cooperation in social dilemmas and collective action: The effects of risk preferences

Abstract

We address two related issues. First, we analyze the effects of risk preferences on cooperation in social dilemmas. Second, we compare social dilemmas in which outcomes represent gains with dilemmas where outcomes represent losses. We show that predictions on gain‐loss asymmetries with respect to conditions for cooperation crucially depend on assumptions concerning risk preferences. Under the assumption of risk aversion for gains as well as losses together with an assumption of decreasing absolute risk aversion, conditions for cooperation are less restrictive if outcomes represent losses than if outcomes represent gains. Conversely ‐ and counterintuitively ‐ under the assumption of S‐shaped utility, conditions for cooperation are more restrictive if outcomes represent losses than if outcomes represent gains. We provide an experimental test of such predictions. Only a minority of subjects behaves consistent with the assumption of S‐shaped utility. Furthermore, we find no empirical evidence for a general difference between cooperation in social dilemmas in which outcomes represent gains and dilemmas where outcomes represent losses. We do find evidence that risk preferences affect cooperation rates.