DP9743 Risking Other People?s Money

Author(s): Ola Andersson, Håkan J. Holm, Jean-Robert Tyran, Erik Wengström
Publication Date: November 2013
Keyword(s): Competition, Hedging, Incentives, Risk Taking, Social Preferences
JEL(s): C72, C90, D30, D81
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9743

We study risk taking on behalf of others in an experiment on a large random sample. The decision makers in our experiment are facing high-powered incentives to increase the risk on behalf of others through hedged compensation contracts or with tournament incentives. Compared to a baseline condition without such incentives, we find that the decision makers respond strongly to these incentives that result in an increased risk exposure of others. However, we find that the increase in risk taking is mitigated by altruistic preferences and pro-social personality traits.