Risk taking and risk sharing: does responsibility matter?

Elena Cettolin, Franziska Tausch

Research output: Contribution to journalArticleScientificpeer-review

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
Pages (from-to)229-248
JournalJournal of Risk and Uncertainty
Volume50
Issue number3
DOIs
Publication statusPublished - Jun 2015

Fingerprint

Risk taking
Risk sharing
Risk exposure
Responsibility
Redistribution
Lottery
Vulnerability
Control risk
Willingness
Risky choice
Laboratory experiments

Keywords

  • Experiments
  • Decision making under risk
  • risk sharing
  • redistribution
  • responsibility

Cite this

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title = "Risk taking and risk sharing: does responsibility matter?",
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.",
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Risk taking and risk sharing : does responsibility matter? / Cettolin, Elena; Tausch, Franziska.

In: Journal of Risk and Uncertainty, Vol. 50, No. 3, 06.2015, p. 229-248.

Research output: Contribution to journalArticleScientificpeer-review

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AB - 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.

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