26 Pages Posted: 7 Jul 2016 Last revised: 4 Aug 2016
Date Written: August 3, 2016
This paper describes results from a new experiment for the analysis of the determinants and the effects of economic risk-taking. In each session four subjects interact without communicating with each other. Each of the four subjects chooses three slots for ice fishing on their portion of a frozen lake which has the shape of a square. The farther out on the lake the higher are the returns but also the higher is the risk of a crash and a loss. The results indicate that increasing the steepness of the available return-risk profile leads to a higher frequency of crashes. Bounded rationality in the sense of naïve risk taking does not explain any of the crashes occurring. Instead, behavioral traits of subjects regarding risky choices and their distribution across subjects help to understand performance in a risky environment and the frequency of crises.
Keywords: Risk taking, individual and collective risk, typology of risk takers
JEL Classification: C91, D84, E32, D74
Suggested Citation: Suggested Citation