Risk taking and risk sharing: does responsibility matter? (RM/13/045-revised-)

Elena Cettolin, Franziska Tausch

Research output: Working paperProfessional

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Abstract

Risk sharing arrangements diminish individuals’ vulnerability to probabilistic events that negatively affect their financial situation. This is because risk sharing implies redistribution, as lucky individuals support the unlucky ones. We hypothesize that responsibility for risky choices decreases individuals’ willingness to share risk by dampening redistribution motives, and
investigate this conjecture with a laboratory experiment. Responsibility is created by allowing participants to choose between two different risky lotteries before they decide how much risk they share with a randomly matched partner. Risk sharing is then compared to a treatment where risk exposure is randomly assigned. We find that average risk sharing does not depend on whether
individuals can control their risk exposure. However, we observe that  when individuals  are responsible  for their  risk exposure, risk sharing decisions  are systematically conditioned on the risk exposure of the sharing partner, whereas this is not the case when risk exposure is random.


Original languageEnglish
Place of PublicationMaastricht
PublisherMaastricht University, Graduate School of Business and Economics
DOIs
Publication statusPublished - 2016

Publication series

SeriesGSBE Research Memoranda
Number018

JEL classifications

  • d81 - Criteria for Decision-Making under Risk and Uncertainty
  • c91 - Design of Experiments: Laboratory, Individual

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