Uncovering Correlation Sensitivity in Decision Making under risk

Allowing risk preferences to be sensitive to the correlation between lottery outcomes can resolve
classical deviations from expected utility theory and provides a plausible explanation for phenom-
ena in various real-world settings. However, evidence on correlation sensitivity is limited and
mixed. In this paper, we first show that correlation-sensitive preferences in the general frame-
work of Lanzani (2022) can be classified into three categories. We propose a novel experimental
task that allows to classify experimental subjects according to this categorization. In a series of
experiments, we find that aggregate choices display correlation sensitivity but in the opposite di-
rection as often assumed in regret and salience theory. Individual level analysis suggests that the
aggregate findings are driven by a minority who consistently exhibit this behavior even when it
violates first-order stochastic dominance. Finally, we disentangle between correlation sensitivity
due to deliberate within-state comparisons and incidental payoff comparisons due to the framing
of decision problems, and find that both channels produce correlation sensitivity, with deliberate
comparisons being somewhat more important.