The Sharing Dilemma: Joining Groups and Sharing Resources as a Means of Coping with Environmental Risk

A well-known hypothesis, rooted in anthropological studies, posits that individuals join cooperative groups and share resources in order to reduce environmental risk. Forming groups as means of risk-sharing is also witnessed in many poor countries, in which communities employ risk-sharing arrangements, such as group loans with joint liability. Despite its significance for explaining group formation, the 'Social Insurance' hypothesis has hardly been subjected to systematic experimental testing. Here we report results of three experiments, in which environmental risks were modeled as probable gains or probable losses. For gains, the results supported the hypothesis that individuals form groups and share resources in order to reduce risk. For losses, the results revealed an intriguing switch from a reluctance to join groups under low-risk, to ubiquitous readiness to join under high-risk. These results are discussed in light of Prospect Theory and risk-sensitive models, and their significance to the research on risk-sharing is highlighted.