Do markets encourage risk-seeking behaviour?

F. Mengel, R.J.A.P. Peeters

Research output: Working paperProfessional

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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.
Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University, Graduate School of Business and Economics
Number of pages33
DOIs
Publication statusPublished - 1 Jan 2015

Publication series

SeriesGSBE Research Memoranda
Number042

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