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Are You Risk Averse Over Other People’s Money?

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  • Chakravarty Sujoy
  • Harrison Glenn W
  • Haruvy Ernan E
  • Rutstrom Elisabet E

Abstract

Abstract. Decisions with uncertain outcomes are often made by one party in settingswhere another party bears the consequences. Whenever an agent is delegated tomake decisions that affect others, such as in the typical corporate structure, does theagent make decisions that reflect the risk preferences of the principal? We examinethis question in the simplest possible setting using controlled laboratory experiments.We find a remarkable result: when an individual makes a decision for an anonymousstranger, he tends to exhibit less risk aversion. This reduction is relative to his ownpreferences, and also relative to his belief about the other’s preferences. This resulthas significant implications for the design of contracts between principals and agents.

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Bibliographic Info

Paper provided by Indian Institute of Management Ahmedabad, Research and Publication Department in its series IIMA Working Papers with number WP2005-08-04.

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Handle: RePEc:iim:iimawp:wp01895

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Cited by:
  1. Filippin, A. & Crosetto, P., 2014. "A reconsideration of gender differences in risk attitudes," Working Papers 2014-01, Grenoble Applied Economics Laboratory (GAEL).
  2. Dinky Daruvala, 2007. "Gender, risk and stereotypes," Journal of Risk and Uncertainty, Springer, vol. 35(3), pages 265-283, December.
  3. Andrea Leuermann & Benjamin Roth, 2012. "Does Good Advice Come Cheap?: On the Assessment of Risk Preferences in the Lab and in the Field," SOEPpapers on Multidisciplinary Panel Data Research 475, DIW Berlin, The German Socio-Economic Panel (SOEP).
  4. Dreber, Anna & Rand, David & Wernerfelt, Nils & Worrell, Peter & Zeckhauser, Richard, 2013. "The Decisions of Entrepreneurs and Their Agents: Revealed Levels of Risk Aversion and Betrayal Aversion," Working Paper Series rwp13-016, Harvard University, John F. Kennedy School of Government.
  5. Paolo Crosetto & Antonio Filippin & Janna Heider, 2013. "A Study of Outcome Reporting Bias Using Gender Differences in Risk Attitudes," CESifo Working Paper Series 4466, CESifo Group Munich.
  6. Natalia Montinari & Michela Rancan, 2013. "Social Preferences under Risk: the Role of Social Distance," Jena Economic Research Papers 2013-050, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  7. Kvaløy, Ola & Luzuriaga, Miguel, 2012. "Playing the Trust Game with Other People’s Money," UiS Working Papers in Economics and Finance 2012/17, University of Stavanger.
  8. Pahlke, Julius & Strasser, Sebastian & Vieider, Ferdinand M., 2012. "Responsibility effects in decision making under risk," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2012-402, Social Science Research Center Berlin (WZB).
  9. Leuermann, Andrea & Roth, Benjamin, 2012. "Does good advice come cheap? - On the assessment of risk preferences in the lab and the field," Working Papers 0534, University of Heidelberg, Department of Economics.
  10. Andersson, Ola & Holm, Håkan J. & Tyran, Jean-Robert & Wengström, Erik, 2013. "Risking Other People’s Money: Experimental Evidence on Bonus Schemes, Competition, and Altruism," Working Paper Series 989, Research Institute of Industrial Economics.
  11. Seda Ertac & Mehmet Y. Gurdal, 2012. "Personality, Group Decision-Making and Leadership," Koç University-TUSIAD Economic Research Forum Working Papers 1227, Koc University-TUSIAD Economic Research Forum.
  12. Carlsson, Fredrik & Daruvala, Dinky & Jaldell, Henrik, 2008. "Do you do what you say or do you do what you say others do?," Working Papers in Economics 309, University of Gothenburg, Department of Economics.

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