Do markets encourage risk-seeking behaviour?

Friederike Mengel and Ronald Peeters

No 42, Research Memorandum from Maastricht University, Graduate School of Business and Economics (GSBE)

Abstract: Excessive risk taking in markets can have devastating consequences as recent financial crises have high-lighted. In this paper we ask whether markets as an institution encourage 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 and we provide evidence for such a mechanism.

Date: 2015-01-01
New Economics Papers: this item is included in nep-exp and nep-upt
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Journal Article: Do markets encourage risk-seeking behaviour? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:unm:umagsb:2015042

DOI: 10.26481/umagsb.2015042

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