Revolution and risk - Paradoxical consequences of risk aversion in interdependent situations

We analyze the effects of risk preferences on cooperative behavior in a repeated Prisoner's Dilemma. We show that, counterintuitively, risk aversion favors cooperative behavior. Hence, if people are risk averse for gains and risk seeking for losses, conditions for cooperation are less restrictive when outcomes represent gains than if outcomes represent losses. In an experimental test of this prediction, we find that risk aversion indeed favors cooperation. After controlling for the effect of risk preferences, we do not find any empirical evidence for a difference between cooperation in social dilemmas in which outcomes represent gains and dilemmas where outcomes represent losses. The relevance of this result with respect to theories of collective action, in particular Coleman's account of theories of revolution, is outlined.