Do markets encourage risk-seeking behaviour?

Friederike Mengel and Ronald Peeters

The European Journal of Finance, 2022, vol. 28, issue 13-15, 1474-1480

Abstract: Excessive risk-taking in markets can have devastating consequences as the latest financial crises have highlighted. In this paper, we ask whether markets as an institution encourages such excessive risk-taking. To establish causality, we isolate the effects of market interaction in a laboratory experiment keeping other possibly confounding factors constant. We find that the opposite is true. Markets decrease participants' willingness to take risks. This finding can be explained by social comparison utility in the presence of negatively correlated risks.

Date: 2022
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Working Paper: Do markets encourage risk-seeking behaviour? (2015)
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DOI: 10.1080/1351847X.2020.1828963

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