Limiting Liability? – Risk and Ambiguity Attitudes Under Real Losses

Schmalenbach Business Review, Vol. 65, January 2013, pp. 54-75

22 Pages Posted: 16 Oct 2013

See all articles by Christopher Koch

Christopher Koch

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management

Daniel Schunk

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management; University of Zurich - Department of Economics

Date Written: 2013

Abstract

Using a laboratory experiment in which the unlimited liability treatment involves real out-of-pocket losses, we investigate and compare the behavioral effects of auditors’ limited and unlimited liability on behavior under risk and ambiguity. We find that aversion to both risk and ambiguity are higher under unlimited liability than under limited liability, and that these two constructs are correlated under unlimited liability. Our findings explain why some auditors might be hindered in performing their duties properly under unlimited liability. Further, our findings emphasize the importance of appropriately modeling risk and ambiguity attitudes in economic models on liability.

Keywords: Ambiguity, Auditor Liability, Experimental Economics, Limited Liability, Risk Aversion

JEL Classification: C91, K13, M42

Suggested Citation

Koch, Christopher and Schunk, Daniel, Limiting Liability? – Risk and Ambiguity Attitudes Under Real Losses (2013). Schmalenbach Business Review, Vol. 65, January 2013, pp. 54-75, Available at SSRN: https://ssrn.com/abstract=2340445

Christopher Koch (Contact Author)

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany
+49 (6131) 3929990 (Phone)

HOME PAGE: http://https://www.cg.bwl.uni-mainz.de/

Daniel Schunk

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany

University of Zurich - Department of Economics ( email )

Bluemlisalpstr. 10
Zurich, 8006
Switzerland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
72
Abstract Views
1,265
rank
407,523
PlumX Metrics