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Do Markets Encourage Risk Seeking Behavior?

Mengel, Friederike and Peeters, Ronald (2020) 'Do Markets Encourage Risk Seeking Behavior?' The European Journal of Finance. ISSN 1351-847X

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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 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.

Item Type: Article
Uncontrolled Keywords: Markets; Risk-taking; Social comparison; Experiment
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Elements
Date Deposited: 30 Sep 2020 12:46
Last Modified: 20 Nov 2020 17:15

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