Risk Taking and Risk Sharing: Does Responsibility Matter?

Posted: 17 Nov 2013 Last revised: 15 Mar 2016

See all articles by Elena Cettolin

Elena Cettolin

Maastricht University

Franziska Tausch

Max Planck Institute for Research on Collective Goods

Date Written: August 2, 2013

Abstract

Risk sharing arrangements diminish individuals’ vulnerability to probabilistic events that negatively affect their financial situation. This is because risk sharing implies redistribution, as lucky individuals support the unlucky ones. We hypothesize that responsibility for risky choices decreases individuals’ willingness to share risk by dampening redistribution motives, and investigate this conjecture with a laboratory experiment. Responsibility is created by allowing participants to choose between two different risky lotteries before they decide how much risk they share with a randomly matched partner. Risk sharing is then compared to a treatment where risk exposure is randomly assigned. We find that average risk sharing does not depend on whether individuals can control their risk exposure. However, we observe that when individuals are responsible for their risk exposure, risk sharing decisions are systematically conditioned on the risk exposure of the sharing partner, whereas this is not the case when risk exposure is random.

JEL Classification: -

Suggested Citation

Cettolin, Elena and Tausch, Franziska, Risk Taking and Risk Sharing: Does Responsibility Matter? (August 2, 2013). Netspar Discussion Paper No. 08/2013-049, Available at SSRN: https://ssrn.com/abstract=2355085 or http://dx.doi.org/10.2139/ssrn.2355085

Elena Cettolin

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Franziska Tausch (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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