Do markets encourage risk-seeking behaviour?. Issue 13 (13th October 2022)

• Record Type: Journal Article
• Authors: Mengel, Friederike; Peeters, Ronald
• Is Part Of: European journal of finance. Volume 28:Issue 13/15(2022)
• Page Start: 1474
• Page End: 1480
• Publication Date: 2022-10-13
• Subjects: Markets -- Risk-taking -- Social comparison -- Experiment; D02 -- D03 -- C92; Finance -- Periodicals; Finance -- Europe -- Periodicals; International finance -- Periodicals; 332.094
• DOI: 10.1080/1351847X.2020.1828963
• Languages: English
• ISSNs: 1351-847X

Abstract

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.