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August 19, 2019 Monday 01:00:06 PM IST

Lower returns prompt higher risk-taking

Teacher Insights

Economists at the University of Gottingen have  investigated the risk preferences of 236 participants in computer laboratory experiments to know if differences in performance have an impact on the appetite for risk-taking in decision-makers.  The result of their study is that people's willingness to take risks increases as soon as they get a lower return than other people with whom they compare themselves. At the same time, decision-makers take lower risks if they get a higher return than their peers. Risk preferences play an important role in financial and product markets, as they determine the investment behaviour and the associated profits and losses of investors. The results of the study provide valuable insights into the design of employment contracts in order to control the risk-taking behaviour of employees through organisational structures and information policies. The study was published in the journal Games and Economic Behaviour.

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