Published: May 6, 2020

While it is tempting to think that adolescents observed by peers stop paying attention to the potential negative consequences of their actions, a new Life Course Centre Working Paper shows this is not the case.

The study was undertaken by Life Course Centre researchers Professor Agnieszka Tymula and PhD student Xueting Wang of the University of Sydney School of Economics. They used a laboratory experiment to investigate how peer observation affects adolescents’ risky decision-making in monetary gains and losses. The study deconstructed this decision-making into three components: people’s tendency to take risks in pure gain scenarios; people’s tendency to take risks in pure loss scenarios; and loss aversion (people’s tendency to weigh losses more than gains of the same size). Participating adolescents, aged 12 to 24 years old, were repeatedly asked to choose between a safe monetary outcome and a lottery. They made the choices in private and also when observed by an age-matched peer.

The Working Paper found that older adolescents (18-24 years old) are more likely to take risks when observed. This happens independent of whether the consequences of their choices can be only gains, only losses, or mixed. The paper did not find evidence of adolescents becoming less sensitive to losses versus gains under observation. For younger adolescents (12 to 17 years old), neither their risk attitudes nor their loss aversion was affected by peer observation.

The paper concludes that, in the presence of peers, adolescents’ relative weighting of losses to gains (loss aversion) increases. This is good news for policy that suggests that appealing to loss aversion should be especially effective at reducing harmful adolescent behaviours committed in the presence of peers. The consequences of these decisions can result in substantial individual and societal losses in terms of lives lost, injury, hospitalisation costs, and foregone opportunities.

“Given how upsetting some of the statistics on adolescent decision-making are and the amount of the policy effort that specifically addresses behaviour in adolescence, we still have relatively little economic understanding of why this group so often ends up in trouble… interventions are supposed to improve adolescents’ welfare but the findings on their effectiveness are mixed. Part of the reason is likely that these policies were designed without an in-depth understanding of the economic preferences of adolescents.”

You can read the full Working Paper, ‘Increased Risk Taking, Not Loss Tolerance, Drives Adolescents’ Propensity to Gamble More Under Peer Observation,’ here.