The Journal of Socio-Economics 38 (2009) 752–756 Contents lists available at ScienceDirect The Journal of Socio-Economics journal homepage: www.elsevier.com/locate/soceco Risk behavior in decision-making in a multi-person-setting Thomas Fenzl * , Thomas Brudermann University of Klagenfurt, Institute of Psychology, Department of Economic Psychology, Universitätsstraße 65-67, A-9020 Klagenfurt, Austria article info Article history: Received 26 November 2008 Received in revised form 11 June 2009 Accepted 17 June 2009 JEL classification: 28.002 Z2 (Economic Psychology) 4.008 D81 (Criteria for Decision-Making under Risk and Uncertainty) Keywords: Risk behavior Uncertainty Decision-making Multi-person-setting Other-directed abstract When people have to make a choice in an individual setting between a known-risk option and an untested situation of uncertainty, the majority prefers the known risk over the uncertainty of the alternative. The confrontation with an unfamiliar situation in an environment including other participants allows for new mechanisms in risk-perception and risk-evaluation. People tend to become other-directed and use the behavior and consequences of actions of other people in the environment to assess risk. Our investigations show that warning signals observable in the behavior of other participants in the setting reinforce people’s preference for known risks over uncertainty. © 2009 Elsevier Inc. All rights reserved. 1. Introduction The current global crisis causes the largest transformation since more than 80 years and comes along with uncertainty and dis- orientation. Previously set standards, structures and norms are replaced and revolutionary economic processes are being accel- erated. Within this new framework people have to make choices between several alternatives, some including known risks, oth- ers containing unknown and untested ventures accompanied by highest uncertainty. How do people cope with such risks and uncer- tainty represented by novel decision-making situations? Human risk behavior has to a great extent been studied as individual cognitive process in which individuals collect and pro- cess information to form their decisions and actions. We present a field experiment that allowed for new mechanisms in risk- perception and risk-evaluation, as participants were confronted with an unfamiliar situation in a multi-person-setting. The find- ings are discussed with respect to economic decision-making in situations of uncertainty. 2. Related work When it comes to decision-making under uncertainty, familiar- ity often cuts out all other factors of orientation. In an experiment * Corresponding author. Tel.: +43 676 7362 381; fax: +43 463 2700 1626. E-mail address: Thomas.Fenzl@uni-klu.ac.at (T. Fenzl). Alter and Oppenheimer (2008) showed that the estimation of the value, which participants attached to certain assets or items, depended crucially on their familiarity with it. Pulford and Colman (2008) have shown in their recent investigations that decision- makers prefer known-risk situations over unknown alternatives irrespective of the degree of uncertainty in the untested options. As in the illustration of the Ellsberg paradox (1961) several urns were filled with balls of two different colors in various distributions. In an individual setting a participant had to choose between a known-risk option, an urn containing 50 balls of each color randomly mixed, and a situation of uncertainty, an urn with an unknown distribution of balls of each color, for a blind drawing of a ball of a specified color. Drawing the specified color entered participants into a lottery with the chance of winning one of three £30 prizes. In this experiment more than 70% of the 149 undergraduate students and members of the general public chose the known-risk option. Pulford and Col- man furthermore found that urn size had no statistically significant impact on the preference of the known-risk option over the situ- ation of uncertainty. In their conclusions they stated that purely cognitive models do not give a full explanation of people’s behavior in such situations and they suggest taking affective processes into account. These kinds of experiments however do not direct enough atten- tion towards the fact that in real life, for example in markets, people are embedded in an environment that includes other peo- ple and therefore are subject to social influence. Even if individuals sometimes decide independently based on available facts and fun- damental data, there is a wide variety of situations where they 1053-5357/$ – see front matter © 2009 Elsevier Inc. All rights reserved. doi:10.1016/j.socec.2009.06.001