Hypothetical and real consequences in experimental auctions for insurance against low-probability risks

Laboratory experiments have provided useful information about how people behave in risky situations. In particular, such experiments have allowed for the observation of many deviations from the predictions of expected utility theory. There is some dispute, however, over the effect of the use of real versus hypothetical money in these experiments and over the impact of experience. In this paper we describe auction experiments in which subjects faced a low-probability risk with either hypothetical or real-money consequences and varying amounts of experience. Using hypothetical payoffs resulted in behavior that provides a reasonable qualitative prediction of behavior with real consequences, but that seems to indicate a less diligent altitude toward spending the money as well as less concern about the risk.     

How accounts shape lending decisions through fostering perceived trustworthiness

We examine the roles of social accounts in influencing lenders’ decisions about loaning money to borrowers. Using field data and a laboratory experiment, we show that lenders will lend money depending on the accounts borrowers tell. In Study 1, field data from a peer-to-peer lending website reveal that two-account combinations (explanation–acknowledgment and explanation–denial) increase the likelihood of favorable lending decisions. A laboratory study helps explain the important role of accounts by unpacking the process of perceived borrower trustworthiness in lending decisions. A final field study assessing the performance of loans 2 years after origination shows that accounts, despite having a positive effect on the loan decision process, negatively predict loan performance. Collectively, the three studies show that accounts facilitate economic exchanges between unacquainted transaction partners because of their role in increasing perceived trustworthiness, but that ironically, accounts can negatively relate to loan performance.