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Università della Svizzera italiana

The ecology of risk taking

Degeorge, François ; Moselle, Boaz ; Zeckhauser, Richard

In: Journal of Risk and Uncertainty, 2004, vol. 28, p. 195-228

We analyze the risk level chosen by agents who have private information regarding their quality. We show that even risk-neutral agents will choose risk strategically to enhance their reputation in the market, and that such choices will be influenced by the mix of other agents’ types. Assuming that the market has no strong prior about whether the agents are good or bad, good agents will choose...