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The Decisions of Entrepreneurs and Their Agents: Revealed Levels of Risk Aversion and Betrayal Aversion


  • Dreber, Anna

    (Stockholm School of Economics)

  • Rand, David

    (Harvard University and Yale University)

  • Wernerfelt, Nils


  • Worrell, Peter

    (Bigelow Company, Portsmouth, NH)

  • Zeckhauser, Richard

    (Harvard University)


This paper studies decision making by successful entrepreneurs and their agents. Since entrepreneurs decisions are often influenced by their agents' advice, understanding the behavior of both involved parties is crucial in analyzing observed decisions. To this end, a sample of successful American entrepreneurs and their agents made a high-stakes decision in a real-world context, albeit in an experimental setting offering experimental-scale payoffs. They were asked whether to accept a contract in what was essentially a trust game. A monetary gamble measured economic risk taking; and the difference between the two measured betrayal aversion. All entrepreneurs assumed the professional role as principal. All individuals playing agent were real world agents. We also have some agents play the role of the principal, and thus test whether subjects' roles affect the decisions they make. Consistent with most prior studies, our subjects proved both economically risk-averse and betrayal averse. Little difference in behavior emerged between entrepreneurs and agents in their respective professional capacities, or with agents acting as principals. These results imply that, under our realistically framed business scenario with aligned incentives, agents could be relied upon to be "faithful," to act according to their principals' proclivities. Importantly, however, they do not advise against what many expert observers believe to be principals' excess aversion to risks. That is, they fail to act as "correcting agents".

Suggested Citation

  • 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.
  • Handle: RePEc:ecl:harjfk:rwp13-016

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    References listed on IDEAS

    1. Lisa Anderson & Jennifer Mellor, 2009. "Are risk preferences stable? Comparing an experimental measure with a validated survey-based measure," Journal of Risk and Uncertainty, Springer, vol. 39(2), pages 137-160, October.
    2. Hvide, Hans K. & Panos, Georgios A., 2014. "Risk tolerance and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 111(1), pages 200-223.
    3. Sujoy Chakravarty & Glenn W. Harrison & Ernan E. Haruvy & E. Elisabet Rutström, 2011. "Are You Risk Averse over Other People's Money?," Southern Economic Journal, Southern Economic Association, vol. 77(4), pages 901-913, April.
    4. Iris Bohnet & Benedikt Herrmann & Richard Zeckhauser, 2010. "Trust and the Reference Points for Trustworthiness in Gulf and Western Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 811-828.
    5. Holm, Håkan J. & Opper, Sonja & Nee, Victor, 2012. "Entrepreneurs under Uncertainty: An Economic Experiment," Working Papers 2012:4, Lund University, Department of Economics.
    6. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    7. James Andreoni & Charles Sprenger, 2012. "Risk Preferences Are Not Time Preferences," American Economic Review, American Economic Association, vol. 102(7), pages 3357-3376, December.
    8. Gary E. Bolton & Axel Ockenfels, 2010. "Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States: Comment," American Economic Review, American Economic Association, vol. 100(1), pages 628-633, March.
    9. Renate Schubert, 1999. "Financial Decision-Making: Are Women Really More Risk-Averse?," American Economic Review, American Economic Association, vol. 89(2), pages 381-385, May.
    10. Keith Coble & Jayson Lusk, 2010. "At the nexus of risk and time preferences: An experimental investigation," Journal of Risk and Uncertainty, Springer, vol. 41(1), pages 67-79, August.
    11. Elke U. Weber & Christopher Hsee, 1998. "Cross-Cultural Differences in Risk Perception, but Cross-Cultural Similarities in Attitudes Towards Perceived Risk," Management Science, INFORMS, vol. 44(9), pages 1205-1217, September.
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    1. repec:eee:jeborg:v:141:y:2017:i:c:p:110-121 is not listed on IDEAS
    2. Cubitt, Robin & Gächter, Simon & Quercia, Simone, 2017. "Conditional cooperation and betrayal aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 110-121.

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