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 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.
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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