Professor of Economics and Director of ICES Daniel Houser has a new paper in the latest issue of the journal Experimental Economics.
The article, “What You Don’t Know Won’t Hurt You: A Laboratory Analysis of Betrayal Aversion,” was co-authored with Professor Jason Aimone, a former ICES graduate student and currently a Post-Doctoral Associate at the Virginia Tech Carilion Research Institute (VTCRI) and an Assistant Professor in the Department of Economics at Baylor University.
Recent research argues “betrayal aversion” leads many people to avoid risk more when a person, rather than nature, determines the outcome of uncertainty. However, past studies indicate that factors unrelated to betrayal aversion, such as loss aversion, could contribute to differences between treatments. Using a novel experiment design to isolate betrayal aversion, one that varies how strategic uncertainty is resolved, we provide rigorous evidence supporting the detrimental impact of betrayal aversion. The impact is substantial: holding fixed the probability of betrayal, the possibility of knowing that one has been betrayed reduces investment by about one-third. We suggest emotion-regulation underlies these results and helps to explain the importance of impersonal, institution-mediated exchange in promoting economic efficiency.