Collective Dangerous Behavior: Theory and Evidence on Risk-Taking
AbstractIt is commonly found that uncertainty helps discipline economic agents in strategic contexts. Using a stochastic variant of the Nash Demand Game, we show that the presence of uncertainty may have a dramatically opposite effect. Cautious (efficient) and dangerous (inefficient) equilibria may co-exist regardless of agents’ risk preferences. We report experimental evidence on these predictions. We find that a risk-taking society may emerge from the decentralized actions of risk-averse individuals. Subjects predominantly play symmetric dangerous equilibria, even when all agents are risk averse. An important driver for this result is the pessimistic beliefs of subjects regarding others’ claims.
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Bibliographic InfoPaper provided by Département des Sciences Économiques, Université de Genève in its series Research Papers by the Department of Economics, University of Geneva with number 13101.
Length: 32 pages
Date of creation: Oct 2013
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
- NEP-EXP-2013-10-18 (Experimental Economics)
- NEP-HPE-2013-10-18 (History & Philosophy of Economics)
- NEP-UPT-2013-10-18 (Utility Models & Prospect Theory)
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