Lower returns prompt higher risk-taking
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.