Responsibility and limited liability in decision making for others – An experimental consideration

Sascha Füllbrunn () and Wolfgang Luhan

Journal of Economic Psychology, 2020, vol. 77, issue C

Abstract: Agency in financial markets has been claimed to foster excessive risk taking, ultimately leading to bubble formation. The main driving factor appears to be the skewed bonus system for agents who invest other people’s money. The resulting excessive risk taking on behalf of others would imply that such bonus systems crowds out responsible decision making for others in order to serve egoistic self-interest. To test this implication, we conduct laboratory experiments comparing decision making for others with and without such a bonus system. First, we show that, in the absence of bonus systems, decision makers invested significantly less for others than for themselves. Second, we show that limited liable decision makers—participating only in gains but not in losses—invested substantially more for others than for themselves. Hence, our results suggest that indeed limited liability outweighs responsibility.

Keywords: Financial decision making; Responsibility; Limited liability; Decision making for others; Risk preferences; Experiment (search for similar items in EconPapers)
JEL-codes: C91 D03 D81 G11 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:77:y:2020:i:c:s0167487018306470

DOI: 10.1016/j.joep.2019.06.009

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