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Collective Dangerous Behavior: Theory and Evidence on Risk-Taking

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  • Olivier Bochet
  • Jeremy Laurent-Lucchetti
  • Justin Leroux
  • Bernard Sinclair-Desgagné

Abstract

It 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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Paper provided by Institut d'Economie et Econométrie, Université de Genève in its series Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva with number 13101.

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Length: 32 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:gen:geneem:13101

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  1. Peter Eso & Lucy White, 2001. "Precautionary Bidding in Auctions," Discussion Papers 1331, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Alessandro Tavoni & Astrid Dannenberg & Giorgos Kallis & Andreas Löschel, 2011. "Inequality, communication and the avoidance of disastrous climate change," LSE Research Online Documents on Economics 37570, London School of Economics and Political Science, LSE Library.
  3. Budescu David V. & Rapoport Amnon & Suleiman Ramzi, 1995. "Common Pool Resource Dilemmas under Uncertainty: Qualitative Tests of Equilibrium Solutions," Games and Economic Behavior, Elsevier, vol. 10(1), pages 171-201, July.
  4. Yann Bramoullé & Nicolas Treich, 2009. "Can Uncertainty Alleviate the Commons Problem?," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1042-1067, 09.
  5. Michael McBride, 2010. "Threshold uncertainty in discrete public good games: an experimental study," Economics of Governance, Springer, vol. 11(1), pages 77-99, February.
  6. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  7. Sandler, Todd & Sternbenz, Frederic P., 1990. "Harvest uncertainty and the tragedy of the commons," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 155-167, March.
  8. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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