Discussion paper

DP12995 Risky Choices and Solidarity: Why Experimental Design Matters

Negative income shocks can either be the consequence of risky choices
or random events. A growing literature analyzes the role of responsibility
for neediness for informal financial support of individuals facing
negative income shocks based on randomized experiments. In this paper,
we show that studying this question involves a number of challenges
that existing studies either have not been aware of, or have been
unable to address satisfactorily. We show that the average effect of
free choice of risk on sharing, i.e.\ the comparison of mean sharing
across randomized treatments, is not informative about the behavioural
effects and that it is not possible to ensure by the experimental
design that the average treatment effect equals the behavioural effect.
Instead, isolating the behavioural effect requires conditioning on
risk exposure. We show that a design that measures subjects preferred
level of risk in all treatments allows isolating this effect without
additional assumptions. Another advantage of our design is that it
allows disentangling changes in giving behaviour due to attributions
of responsibility for neediness from other explanations. We implement
our design in a lab experiment we conducted with slum dwellers in
Nairobi that measures subjects' transfers to a worse-off partner both
in a setting where participants could either deliberately choose or
were randomly assigned to a safe or a risky project. We find that
free choice matters for giving and that the effects depend on donors'
risk preferences but that attributions of responsibility play a negligible
role in this context.


Wunsch, C (2018), ‘DP12995 Risky Choices and Solidarity: Why Experimental Design Matters‘, CEPR Discussion Paper No. 12995. CEPR Press, Paris & London. https://cepr.org/publications/dp12995