Collective Dangerous Behavior: Theory and Evidence on Risk-Taking
It is commonly found that uncertainty helps discipline economic agents in strategic contexts. Using a stochastic variant of the Nash Demand Game, we show that the presence of uncertainty may have a dramatically opposite effect. Cautious (efficient) and dangerous (inefficient) equilibria may co-exist regardless of agents’ risk preferences. We report experimental evidence on these predictions. We find that a risk-taking society may emerge from the decentralized actions of risk-averse individuals. Subjects predominantly play symmetric dangerous equilibria, even when all agents are risk averse. An important driver for this result is the pessimistic beliefs of subjects regarding others’ claims.
Year of publication: |
2013-10
|
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Authors: | Bochet, Olivier ; Laurent-Lucchetti, Jeremy ; Leroux, Justin ; Sinclair-Desgagné, Bernard |
Institutions: | Institut d'Economie et Econométrie, Université de Genève |
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