On the Fragility of Third-party Punishment: The Context Effect of a Dominated Risky Investment Option

TL;DR

This paper investigates how the availability of a dominated risky investment option affects third-party punishment, revealing that such options can reduce punishment demand and increase investment, thus highlighting the fragility of TPP.

Contribution

It demonstrates that the presence of an irrelevant dominated investment option can weaken third-party punishment, introducing context effects into the robustness of TPP.

Findings

Demand for punishment decreases with the dominated option available.

Demand for investment increases when the dominated option is present.

The results suggest TPP is fragile under certain context effects.

Abstract

Experimental studies regularly show that third-party punishment (TPP) substantially exists in various settings. This study further investigates the robustness of TPP under an environment where context effects are involved. In our experiment, we offer a third party an additional but unattractive risky investment option. We find that, when the dominated investment option irrelevant to prosocial behavior is available, the demand for punishment decreases, whereas the demand for investment increases. These findings support our hypothesis that the seemingly unrelated and dominated investment option may work as a compromise and suggest the fragility of TPP in this setting.