Group Risky Choice and Resource Allocation Under Social Comparison Effects

Abstract

In a decision-making problem where a group must select an action from risky lotteries to receive a payoff that needs to be distributed among the group members, the group’s external risky choice and internal resource allocation emerge as two critical and interrelated subproblems. Individuals unconsciously exhibit social comparison behavior in many group contexts, profoundly impacting their payoff preferences. In this study, we first formulate a novel group resource allocation model and explore how the allocation equality of group resource is influenced by social comparisons. Particularly, we discuss the non-dictatorship condition under social comparison effects, which guarantees an extreme case of group resource allocation, i.e., “winner-take-all,” does not appear. Subsequently, we investigate the group risky choice under the effects of social comparison. The main results show that (1) introducing social comparison effects can increase allocation equality when loss aversion is high but decrease allocation equality when loss aversion is low, and (2) the classical risk sharing rule still holds in the group under social comparison effects, but introducing social comparison effects will lead to the group being more risk averse.