Risky Shift Versus Cautious Shift: Determining Differences In Risk Taking Between Private And Public Management Decision-Making

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Douglas B. Reynolds
Jacob Joseph
Reuben Sherwood

Keywords

Risk, Experimental Economics, Investment, Decision Making, Government Ownership

Abstract

This paper uses empirical evidence to examine whether people take more risk for their own potential loss/gain and less risk for other people’s potential loss/gain or vice versa.  An experiment is described wherein participants had the option of taking different risks in exchange for their own benefit and the benefit of others.  Results indicate that subjects take a statistically significant higher level of risk for themselves as individuals than they do when other’s payoffs are at stake.  This indicates that people are less risk averse in making decisions for themselves and more risk averse in making decisions that affect others.  However, when the amount of reward is increased, the findings change.  The purpose of the experiment is to find a better explanation for how government-owned businesses or large corporations work, where anecdotal evidence suggests much less innovation and risk taking takes place compared to small proprietary firms. 

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