Ambiguity and risk taking in organizations

Kunreuther, Meszaros, and Hogarth (1993) argue that insurers are risk averse and ambiguity averse, and that they use cognitive reference points and constraints in making pricing decisions. They further claim that insurer ambiguity may be a factor that has a role in market failure at the industry level. Arguably, ambiguity may be an important aspect of decision behavior. In this article, research on managerial risk taking is reviewed with a focus on the relationship between ambiguity and risk taking. In particular, the effects of the organizational and institutional context are highlighted. It is argued that the political aspects of insurer decision behavior should be considered as well. Implications for further study and understanding of decision making are discussed.     

Social comparison and risk taking behavior

This paper studies the effects of social comparison on risk taking behavior. In our theoretical framework, decision makers evaluate the consequences of their choices relative to both their own and their peers’ conditions. We test experimentally whether the position in the social ranking affects risk attitudes. Subjects interact in a simulated workplace environment where they perform a work task, receive possibly different wages, and then undertake a risky decision that may produce an extra gain. We find that social comparison matters for risk attitudes. Subjects are more risk averse in the presence of small social gain than social loss. In addition, risk aversion is decreasing in the size of the social gain.     

Moral hazard,risk seeking,and free riding

This article reports on a laboratory study of moral hazard in insurance markets. The experimental literature on the provision of public goods suggests that agents often sacrifice their narrowly defined self-interest for the good of the group. However, in those experiments, losses are deterministic. We find cooperation in experiments with stochastic losses to be much lower than in otherwise identical experiments with deterministic losses. We argue that the combination of risk seeking and free riding under stochastic returns to investment in loss control makes moral hazard particularly problematic for insurance markets.     

The effect of fast and slow decisions on risk taking

We experimentally compare fast and slow decisions in a series of experiments on financial risk taking in three countries involving over 1700 subjects. To manipulate fast and slow decisions, subjects were randomly allocated to responding within 7 seconds (time pressure) or waiting for at least 7 or 20 seconds (time delay) before responding. To control for different effects of time pressure and time delay on measurement noise, we estimate separate parameters for noise and risk preferences within a random utility framework. We find that time pressure increases risk aversion for gains and risk taking for losses compared to time delay, implying that time pressure increases the reflection effect of Prospect Theory. The results for gains are weaker and less robust than the results for losses. We find no significant difference between time pressure and time delay for loss aversion (tested in only one of the experiments). Time delay also leads to less measurement noise than time pressure and unconstrained decisions, and appears to be an effective way of decreasing noise in experiments.     

Prosocial risk taking and interpersonal regret in children: An individual differences study

The relations between prosocial risk taking (taking a risk to benefit another person; PSRT) and interpersonal regret (regret that one's choices have caused a poor outcome for another person) were examined in 192 children aged 7–9. PSRT was measured by children's choices within a gambling task in which one choice guaranteed participants a good prize whereas the other involved risking this prize to help a peer also win a good prize. Interpersonal regret was assessed within the same task by examining children's change in emotion when they learned they would have won a better prize for a peer had they chosen differently. Performance on this task was also examined in relation to sympathy and resource sharing. Findings indicated that the operationalizations of PSRT and interpersonal regret were meaningful. Children who took a prosocial risk were more generous in a resource sharing task. In some circumstances, children who took a prosocial risk were also more likely to experience interpersonal regret than those who did not take a prosocial risk, indicating that experiencing interpersonal regret may be related to individual differences in prosociality. However, experiencing interpersonal regret did not have a direct effect on subsequent prosocial behavior, when measured by resource sharing. We consider findings in relation to a possible distinction between outcome and process regret and the generalizability of the behavioral consequences of regret.     

Income inequality and risk taking: the impact of social comparison information

Theory and Decision - In contrast to the assumptions of standard economic theory, recent experimental evidence shows that the income of peers has a systematic impact on observed degrees of risk...     

Preference towards control in risk taking: Control,no control,or randomize?

This paper experimentally investigates preference towards different methods of control in risk taking. Participants are asked to choose between different ways for choosing which numbers to bet on for a gamble. They can choose the numbers themselves (control), let the experimenter choose (no control), or randomize. Classical economic theories predict indifference among the three methods. I found that participants exhibit strict preference for control, preference for no control, and preference for randomization. These preferences are robust as participants are willing to pay a small amount of money to implement their preferred method. Most participants believe that the winning probability under different methods is the same. This result contributes to the literature by clarifying that for most participants who exhibit preference for control, their preference is not due to illusion of control, but by source preference. Participants invest less in the risky gamble when they are not offered their preferred method.     

Measuring risk aversion with lists: a new bias

Various experimental procedures aimed at measuring individual risk aversion involve a list of pairs of alternative prospects. We first study the widely used method by Holt and Laury (Am Econ Rev 92(5):1644–1655, 2002), for which we find that the removal of some items from the lists yields a systematic decrease in risk aversion and scrambles the ranking of individuals by risk aversion. This bias, that we call embedding bias, is quite distinct from other confounds that have been previously observed in the use of the HL method. It may be related to empirical phenomena and theoretical developments where better prospects increase risk aversion. Nevertheless, we also find that the more recent elicitation method due to Abdellaoui et al. (Theory Decis 71:63–80, 2011), also based on lists but using only one and the same probability in the list, does not display any statistically significant bias when the corresponding items of the list are removed. Our results suggest that methods other than the popular HL one may be preferable for the measurement of risk aversion.     

Mean-preserving changes in risk with tail-dominance

In this paper, we consider a class of mean preserving increases in risk such that all risk-averse decision makers respond to an increase in risk by reducing the level of their risky activities. The type of increase in risk that we consider is based on the notion of tail dominance which generalizes other cases previously discussed in the literature.L. Eeckhoudt is Professor of Economics at the Catholic Faculties of Mons (Belgium) and Lille (France). P. Hansen is Professor of Operations Research at Ecole des Hautes Etudes Commerciales, Montréal. Both authors have benefited from comments by P. Caperaa, G. Dionne, J. Meyer and H. Varian. They also thank A. Coopman who carefully reviewed and improved the English style.     

Moral hazard in insurance claiming: Evidence from automobile insurance

This article provides new evidence on moral hazard in insurance markets by analyzing the frequency of automobile bodily injury liability (BIL) claims. We conduct cross-sectional regressions of statewide BIL claims frequency rates on variables representing state economic, demographic, and legal characteristics that affect the marginal costs and benefits of filing claims. As an indicator of moral hazard, we use survey data on consumer attitudes toward various types of dishonest behavior relating to insurance claims. The results provide strong support for the hypothesis that attitudes toward dishonest behavior are related to BIL claims frequency, and thus provide evidence of significant moral hazard in automobile insurance markets.     

The Dynamics of a Social Turning Point Analytical Possibilities

The period now being experienced by Soviet society is characterized by a profound breakdown of social structures, which is bringing to light the latent springs and mechanisms of the life of the social organism. Some of these "springs" become visible when they fail, others when they are set into motion (e.g., the group and personal components of social life). This complex period could be considered fruitful for an analysis of current processes, as well as for an understanding of the nature of social phenomena if our social science had sufficiently reliable instruments for investigating such situations.     

Exploring Group Dynamics in Activity-Based Group Work with Young People Experiencing Homelessness

This article explores the development of group dynamics in an activity-based group comprising four young people experiencing homelessness and one group facilitator. Over the course of 12 sessions, the group produced a coconstructed audio documentary. Nine group sessions were recorded, transcribed, coded, and analyzed for patterns of group dynamics, including communication and interaction patterns, cohesion, social integration and influence, and culture. Findings suggest that the task-oriented nature of coproducing the audio documentary facilitated the development of interpersonal dynamics, provided young people with opportunities for personal growth, and provided them with opportunities to engage their strengths as well.     

Addressing risk factors of cognitive impairment in adults aging with HIV: a social work model

With advances in life-extending medications and later- life infections, the number of older adults with HIV is increasing. Unfortunately, the synergistic effects of aging with HIV may place many people at risk of developing cognitive impairments which can disrupt everyday functioning. Fortunately, cognitive reserve may be maintained, or in some cases improved, by taking action to prevent or mitigate such loss. Preventative and treatment strategies that support biopsychosocial aspects of cognition include reducing alcohol and substance use; improving nutrition; diminishing the effects of comorbidities; increasing social contact; reducing depression and stress levels; engaging in cognitively stimulating activities; applying cognitive remediation therapies; and incorporating psychopharmacological interventions. Such strategies can improve the physiological integrity and health of the brain, thus supporting neuroplasticity and increasing cognitive reserve. Social workers are in a favorable position to recognize cognitive decline in clients and recommend or administer solutions to address such problems. A model for social workers advocating for older clients with HIV who have cognitive problems is provided.     

Mixed risk aversion and preference for risk disaggregation: a story of moments

In a recent article entitled “Putting Risk in its Proper Place,” Eeckhoudt and Schlesinger (2006) established a theorem linking the sign of the n-th derivative of an agent’s utility function to her preferences among pairs of simple lotteries. We characterize these lotteries and show that, in a given pair, they only differ by their moments of order greater than or equal to n. When the n-th derivative of the utility function is positive (negative) and n is odd (even), the agent prefers a lottery with higher (lower) n + 2p-th moments for p belonging to the set of positive integers. This result links the preference for disaggregation of risks across states of nature to the complete structure of moments preferred by mixed risk averse agents. It can be viewed as a generalization of a proposition appearing in Ekern (1980) which focused only on the differences in the n-th moments.     

Suicide risk assessment in the depressed elderly patient with cancer

Although several studies have identified different factors that increase the risk for suicide in the elderly, depression, especially in cancer patients, puts people at even greater risk. In geriatric patients with co-morbid illnesses, depression is often diagnosed or overlooked because of the assumption that it is to be expected. When patients with cancer are diagnosed with depression, it is imperative that clinicians have a clear-cut tool for assessing and identifying signs of suicidality in order to develop a treatment plan to manage the patient. This article delineates the steps involved in conducting a thorough and systematic suicide risk assessment in depressed elderly patients with cancer.     

Risk and risk aversion effects in contests with contingent payments

Contests by their very nature involve risk, winning and losing are both possible, and the gain from winning can itself be uncertain. The participants in a contest use resources to increase their chance of winning. The main focus of this analysis is on the effects of risk aversion and risk in contests where only winners pay for resources used to compete. When payment is contingent on winning, the effect of risk aversion is in the opposite direction of what occurs when costs are paid by both winners and losers. A number of contests observed in the marketplace that exhibit this contingent payment property are discussed.