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Title

Collective Risk-Taking with Threshold Effects

Authors
Bochet, Olivier
Leroux, Justin
Sinclair-Desgagne, Bernard
Year 2015
Abstract It is commonly found that the presence of uncertainty helps discipline economic agents in strategic contexts where incentives would otherwise induce inefficient behavior (Eso and White (2004), Bramoullé and Treich (2009)). We extend this literature by looking at a case where multiple (symmetric) equilibria co-exist. We consider a ariant of the Nash demand game with (discrete) uncertainty about the value of the resource available to divide. Two type of equilibrium typically co-exist, cautious and dangerous. In contrast to the literature, strategic interactions may lead groups of risk averse agents to take inefficiently risky decisions. We develop an experimental setting to test this finding and assess the severity of the equilibrium selection problem. We find that the (Pareto-dominant) cautious equilibria are predominantly played at the individual level. However, we observe play of dangerous equilibria even when all subjects in the group display risk aversion.
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LUCCHETTI, Jérémy et al. Collective Risk-Taking with Threshold Effects. 2015 https://archive-ouverte.unige.ch/unige:81848

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Deposited on : 2016-03-14

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