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The Ecology of Risk Taking

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Author Info

  • FranÁois Degeorge
  • Boaz Moselle
  • Richard Zeckhauser

    ()

Abstract

We analyze the risk level chosen by agents who have private information regarding their quality. We show that even risk-neutral agents will choose risk strategically to enhance their reputation in the market, and that such choices will be influenced by the mix of other agents' types. Assuming that the market has no strong prior about whether the agents are good or bad, good agents will choose low levels of risk, and bad agents high levels. Empirical evidence is gathered on 2462 firms over 24 years. The results support the model: agents of higher quality have less variable performance.

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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 28 (2004)
Issue (Month): 3 (05)
Pages: 195-215

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Handle: RePEc:kap:jrisku:v:28:y:2004:i:3:p:195-215

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Web page: http://www.springerlink.com/link.asp?id=100299

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Cited by:
  1. Natalia Karelaia & Robin Hogarth, 2010. "The attraction of uncertainty: Interactions between skill and levels of uncertainty in market-entry games," Journal of Risk and Uncertainty, Springer, vol. 41(2), pages 141-166, October.
  2. Boaz Moselle & François Degeorge & Richard Zeckhauser, 2007. "Conspicuous conservatism in risk choice," Journal of Risk and Uncertainty, Springer, vol. 35(1), pages 1-16, August.
  3. Piotr, Staszkiewicz, 2012. "Model for reputational risk for subsidiaries of non-public group with reciprocal shareholding," MPRA Paper 35812, University Library of Munich, Germany.

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