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Do markets encourage risk-seeking behaviour?

Mengel, Friederike LU and Peeters, Ronald (2022) In European Journal of Finance 28(13-15). p.1474-1480
Abstract

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 encourages 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.

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author
and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Experiment, Markets, Risk-taking, Social comparison
in
European Journal of Finance
volume
28
issue
13-15
pages
1474 - 1480
publisher
Taylor & Francis
external identifiers
  • scopus:85092074838
ISSN
1351-847X
DOI
10.1080/1351847X.2020.1828963
language
English
LU publication?
yes
id
360b5003-c44e-4b24-9eac-70d9ac5f74bc
date added to LUP
2020-11-03 11:58:43
date last changed
2023-01-16 10:14:57
@article{360b5003-c44e-4b24-9eac-70d9ac5f74bc,
  abstract     = {{<p>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 encourages 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.</p>}},
  author       = {{Mengel, Friederike and Peeters, Ronald}},
  issn         = {{1351-847X}},
  keywords     = {{Experiment; Markets; Risk-taking; Social comparison}},
  language     = {{eng}},
  number       = {{13-15}},
  pages        = {{1474--1480}},
  publisher    = {{Taylor & Francis}},
  series       = {{European Journal of Finance}},
  title        = {{Do markets encourage risk-seeking behaviour?}},
  url          = {{http://dx.doi.org/10.1080/1351847X.2020.1828963}},
  doi          = {{10.1080/1351847X.2020.1828963}},
  volume       = {{28}},
  year         = {{2022}},
}