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Are you risk averse over other people's money?
Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Mehrauli Road, New Delhi, India.
Department of Risk Management and Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, Atlanta GA, United States.
Department of Marketing, School of Management, University of Texas, Richardson TX, United States.
Robinson College of Business and Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta GA, United States.ORCID iD: 0000-0001-8616-3318
2011 (English)In: Southern Economic Journal, ISSN 0038-4038, E-ISSN 2325-8012, Vol. 77, no 4, p. 901-913Article in journal (Refereed) Published
Abstract [en]

Decisions with uncertain outcomes are often made by one party in settings where another party bears the consequences. Whenever an individual is delegated to make decisions that affect others, such as in the typical corporate structure, does the individual make decisions that reflect the risk preferences of the party bearing the consequences? We examine this question in two simple settings, lottery choices and sealed-bid auctions, using controlled laboratory experiments, We find that when an individual makes a decision for an anonymous stranger, there is a tendency to exhibit less risk aversion. This reduction in risk aversion is relative to his or her own preferences, and it is also relative to his or her belief about the preferences of others. This result has significant implications for the design of contracts between principals and agents.

Place, publisher, year, edition, pages
Wiley-Blackwell, 2011. Vol. 77, no 4, p. 901-913
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:oru:diva-68853DOI: 10.4284/0038-4038-77.4.901ISI: 000290828100006Scopus ID: 2-s2.0-79956081728OAI: oai:DiVA.org:oru-68853DiVA, id: diva2:1247339
Available from: 2018-09-11 Created: 2018-09-11 Last updated: 2018-09-13Bibliographically approved

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Rutström, Elisabet

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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf