GAINS, LOSSES, AND COOPERATION IN SOCIAL DILEMMAS AND COLLECTIVE ACTION - THE EFFECTS OF RISK PREFERENCES

We address two related issues. First, we analyze the effects of risk p references on cooperation in social dilemmas. Second, we compare socia l dilemmas in which outcomes represent gains with dilemmas where outco mes represent losses. Pie show that predictions on gain-loss asymmetri es with respect to conditions for cooperation crucially depend on assu mptions concerning risk preferences. Under the assumption of risk aver sion for gains as well as losses together with an assumption of decrea sing absolute risk aversion, conditions for cooperation are less restr ictive 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 exper imental test of such predictions. Only a minority of subjects behaves consistent with the assumption of S-shaped utility. Furthermore, we fi nd no empirical evidence for a general difference between cooperation in social dilemmas in which outcomes represent gains and dilemmas wher e outcomes represent losses. We do find evidence that risk preferences affect cooperation rates.